HTZ earnings call transcript, November 5, 2026

Following management's commentary, we will conduct a question-and-answer session. I would like to remind you that this morning's call is being recorded by the company. I would now like to turn the call over to Robert LaFleur, Vice President of Investor Relations. Please go ahead.

Today we'll use certain non-GAAP financial measures which are reconciled with GAAP numbers in our earnings press release and earnings presentation available on our website. We believe that these non-GAAP measures provide additional useful information about our operations, allowing better evaluation of our profitability and performance. Unless otherwise noted, our discussion today focuses on our global business. Additionally, unless otherwise stated, all comparisons discussed today for the third quarter of 2026 are against the same period a year ago. I'll now turn the call over to Gil.

Good morning, everyone, and thank you for joining us. I want to begin by thanking the Hertz team. This was a busy summer, and they kept delivering for our customers. That is what keeps this transformation moving forward. Let me start with the bigger picture and the progress we're making. Justin Corporate EBITDA was 200. $33 million, up 15% from a year ago. This is our best quarterly EBITDA result in three years and our fourth consecutive quarter of year-over-year EBITDA growth. We continue to drive revenue. We continue growth and margin expansion on flat capacity. In this quarter, we saw particular strength in our underlying U.S. core business. The transformation is working. From the beginning, we anchored our strategy on three priorities. Revenue optimization, discipline, fleet management, and rigorous cost control. We've made real progress on the first two, revenue and fleet. We rebuilt our commercial approach from demand generation to pricing. In our core U.S. business, that gave us steady demand and pricing strength all quarter. Our accelerated fleet rotation and end-to-end fleet management strategy turned our fleet from a headwind to a tailwind for the business. However, the third area, cost control, is where most of the work remains. Elevated cost alongside softness and international are what led us to our adjusted corporate EBITDA shortfall this quarter. We knew this transformation wouldn't be linear, and this quarter showed that, but it does not change our approach.

We stayed focused on what we can control and Scott will go deeper into the financial impact and our expectations. That is the bigger picture. We know where the execution needs to improve. And we are diligently actioning it. The longer I'm in this industry, the more convinced I am that this is fundamentally a local business. We can build better fleet systems, pricing tools. And commercial capabilities centrally. But ultimately, each market must get supply, demand, price, and cost right every day. That is why we're pushing accountability closer to the customer. Why we're increasing... Increasingly focused on profitability at the location level. And why we believe franchising can become a much larger part of Hertz over time. Hertz Future also extends beyond our core... ...business. We see multiple opportunities to build on Hertz capabilities and create new sources of growth across our platform. The recent investment in Oro Mobility is a proof point of the... ...our strategy can create. So today, I want to focus on both sides of the work ahead. Improving execution today and building the right foundation for tomorrow. Turning to our third quarter performance. We continue to see the ongoing benefits of our commercial and fleet management strategies. We are generating more revenue from our fleet and our end-to-end buy-right, hold-right, and sell-right approach. To fleet management continues to deliver stability and depreciation. We are also making meaningful progress in customer experience. In September, net promoter score results in Europe and

APAC were up nearly 11%. We achieved our highest net promoter scores of the year at our North America airports, and that momentum is continuing into Q4, with October posting the highest global net promoter scores in over six years. Our investment in the brand and our product, coupled with an improved revenue management approach, is translating into quality demand generation and improved yield management and accelerating our commercial performance. Global revenue growth was driven by a 5.4% increase in RPD. With US RPD, increasing 8%. We achieved this despite the macro environment, and even though TSA volumes were down 2.8% in Q3, underscoring the strength of demand for our brands. As our transformation evolves, how we measure progress is evolving too. Revenue growth matters, but ultimately, it's about margin. That is why we are focused on increasing the spread between RPD and DOE per day. Which is our best measure of operating efficiency and drives margin expansion. Our spread increased by more than 5% this quarter. Going forward, we are focused on more effectively offsetting operating and inflationary pressures and greater efficiency across the business and fleet. Our fleet management strategy is working as planned. We're sitting on one of our youngest fleets in a dozen years. More than three quarters of our fleet is less than a year old. And these younger vehicles continue to outperform the broader used car market. With the broader Mannheim used vehicle value index was down 50 base.

This points in September, the rental value index was up 420 basis points driven by improved values for younger value vehicles. We remain disciplined. Our model year 27 buys to ensure that unit economics, mix and volumes continue to support our end-to-end strategy of maintaining consistent DPU while giving our customers more choice. And a better experience. We also continue to improve the efficiency of our vehicle disposition process by selling and monetizing faster, which reduces vehicle carrying costs and maximizes net proceeds. Through optimized channel mix. We also need to continue managing our fleet to produce the lowest economic cost. That's best represented by DPU, which is below $300 this quarter. And we believe we can bring that number down even more next year. To address the last piece of the profitability equation, we need to better leverage our corporate overhead costs, which are currently... ...elevated, given the multiple initiatives that are underway as part of our transformation. It is also critical, this margin expansion philosophy down to the location level. As a company to improve overall margins, every location needs to focus on running its operations more efficiently and driving margin improvement. This obviously connects to our strategy to drive a broader, enhanced franchise network. A local... ...level focus is required in this business, and our franchisees do that very well. We are already making good progress in this area. Last week, we signed an agreement with our existing Baltic franchise partner to transition our company-owned locations in the...

the Czech Republic and Slovakia to their management under a new franchise agreement. And that's just the start. We expect 2027 to produce a lot more progress across the globe in franchise expansion. In October, we... Revitalized our America's Franchise Conference, reaffirming our commitment to stronger relationships with our franchisees. These are quality operators who know their markets and who bring an entrepreneurial mindset to run in profitable businesses. It was great to... see the positive energy in the room around our desire to have more of our locations run by outstanding operators like them. While our core rental business remains the economic foundation of Hertz, expanding margins... is our first priority. Hertz has capabilities that extend well beyond just renting cars. We increasingly see opportunities across all four areas of our platform. Rental... fleet, service, and mobility. We are putting dedicated leadership and accountability around each while allowing them to leverage Hertz scale, infrastructure, and expertise. Over time... ...creates the opportunity for multiple earnings and value streams while keeping our capital allocation disciplined. Mobility is a great example of the value our platform can create. Six months ago... We introduced Oro. Built around capabilities, Hertz has developed over decades. Buying, financing, maintaining, and operating vehicles at scale. Today, Oro is a standalone growth platform that just as secured...

An $80 million investment. This investment gives Oro dedicated capital and greater flexibility to grow across its three business lines. Driver-led fleet management. Autonomous vehicle fleet management. And our ride-share rental business, which will transition to operating under the Oro brand. Oro operates approximately 45,000 vehicles across its three business lines. In every major... U.S. mobility market. And Oro's employed drivers have logged over 10 million miles to date, up from 6 million miles in Q2. In Q3, Oro officially launched its partnership... ...with Uber's robo-taxi program. AV-depot operations are now underway in the San Francisco Bay Area, supporting Uber's fleet of lucid vehicles equipped with neuroautonomous technology. ...still on track to deliver approximately $600 million in total revenue this year. The new capital will support investment in its fleet, operating infrastructure, technology, and people, as well as the... ...expansion of its strategic partnerships. And autonomous mobility develops and scales into what could be a multi-trillion dollar market. Oro is well positioned to play an important role in that evolving... ...ecosystem. Our focus is now continuing to build partnerships and capabilities that position Oro to capture that opportunity over time. Oro's investment gives it the autonomy and agility... ...of a standalone company, along with access to its own capital to pursue opportunities in the fast-moving mobility sector. Hertz will remain actively involved in Oro's fleet and corporate services provider.

...allowing them to continue leveraging our expertise and scale to support their growth. Our majority economic interest in Oro ensures Hertz shareholders will share in any future... ...success. In Fleet, as one of the largest used car dealers in the country, we're advancing our Hertz car sales retail strategy to prioritize higher yielding digital channels and build on the scale of our used car operation. ...and rental locations. We recently launched Test Drive Plus, an enhanced iteration of our high conversion rent-to-buy program at our neighborhood rental locations built for a more modern customer. ...experience. We're expanding our use of AI in lead management, customer communications, and reporting improve efficiency and conversion to make buying a car simpler. We're also building deeper strategic relationships with a select group of the nation's largest used car retailers. They buy in volume, which speeds up our sales and structurally lowers our cost of sale. The aim is simple. Sell cars. Spend less to sell each one and earn more on every vehicle. In service, we're starting to leverage the skills and capabilities that power our rental business to create new revenue. Streams and additional growth opportunities. This includes areas like Hertz Logistics, our vehicle transportation service, where we have more than 5,000 drivers and 2,000 partner carriers. Moving vehicles each day to support our rental operations. We're now monetizing that capability with third-party customers by transporting vehicles for dealerships, fleet management companies, and retail.

With approximately 50,000 third-party vehicle moves expected this year. As we also make progress on our Part Out initiative to leverage salvage vehicles, not only for... internal park consumption to lower costs, but also to sell used parts into the marketplace. There are a lot of positive initiatives underway at Hertz. The team is focused and aligned on delivering our first priority. Remains improving execution and expanding margins in our core rental business. At the same time, we're building a more capital efficient company with greater local ownership, a larger franchise network, and new ways to put. Hertz capabilities to work. We won't get everything right every quarter, but the direction is clear, and we're making tangible progress on it. With that, I'll turn it over to Sandeep to walk through our commercial performance.

And good morning, everyone. Our strong commercial performance continued in Q3, with global revenue, RPU, and RPD, each growing approximately 5% for the third consumer.

In Q3, we delivered revenue of $2.6 billion, up 5.6 billion dollars, up 5.6 billion dollars. An operational RPU up 4.7% to $1,639 and continued RPD strength. RPD increased by 5.4 percent. That performance was driven by meaningful gains in our core U.S. business, especially at U.S. airports, with RPD in each increasing approximately 8 percent. Despite... Lowered TSA demand. These gains were partially offset by the softer revenue environment in international. The improvement in our core U.S. business was primarily a result of our work done in prior quarters. To increase quality durable demand. Improved pricing sophistication was a secondary factor too. Q3 is a peak seasonal travel quarter and we saw expected strength. Around key summer holidays. That said, our Q3 performance wasn't driven by a single outsized weekend or temporary demand surge. We saw consistent demand and price. Increasing strength for our brands through July, August and September and combining that demand strength with fleet size restraint at the local level enabled us to deliver strong. In fact, we have now posted over 300 consecutive days of year-over-year RPD growth. This consistency demonstrates the strength of our commercial strategy and execution as we focus on those actions that are within our control. International results were below our expectations due to the conflict in the Middle East and the

resulting impact on. inbound and intra-Europe travel. The team took early action on what we could control thereby delivering an outcome with revenue up 1% and RPD down 60 basis points. The key actions we took were repositioning our fleet to the right locations, combined with deploying demand build tactics with customers and channels where we have more control, including growth in online direct. revenue, small business customer segments, and multi-month rentals. On pricing and product, we have simplified car groups for better monetization and enhanced price. for premium groups. Globally, we also continue our customer first focus, investing in a more consistent, convenient, and caring experience. We saw

sequentially in Q4, after moderating somewhat in Q3. We are seeing encouraging early trends for the holiday season this year, with advanced bookings up 7% for the Christmas New Year's period, and 16% for Thanksgiving. Demand for our brands is healthy, and our commercial engine continues to strengthen. The momentum in customer experience continues to build as we make it golden for our customers and our employees. We are seeing results from several initiatives we highlighted last quarter, with October Net Promoter score improvements in every region. and business segment across the globe. Looking ahead to 2027 and 2028, our commercial roadmap is already positioning us to drive meaningful gains. After spending much of 2025 and 2026 catching up with the industry on commercial innovation, our roadmap is now designed to innovate faster and move and move beyond. current industry capabilities in pricing sophistication, customer experience, and new products. Our objective is to build on our revenue momentum quarter after quarter and grow RPU. faster than inflation, which will which will be critical to driving sustained margin expansion. Today, I want to focus on one of the key levers we are shaping to capture more. value product innovations that help shape customer behavior. Car rental customers have always been able to make cost-free change.

Sounds like we had a bit of a technological issue. There, but hopefully everybody's still on board.

Good morning everyone. As Gil mentioned, there's been a lot happening at Hertz and many of the initiatives we've been working on are accelerating in the second half of 2026. We are simultaneously managing a business turnaround, a strategic transformation, and a complex balance sheet. We are making progress, but doing all three at once creates additional costs and puts additional demands on the organization that can obscure some of the underlying improvements in the core business. We entered the second half expecting continued improvement in the core rental business, and we've seen that, particularly in the U.S., with strong RPD and stable residual values. At the same time, international demand and residual values have been softer, and certain costs across the business have run higher than we expected. Some of the pressures we're experiencing are external, but others are ours. There is also economic friction inherent in transforming a company at this scale that isn't captured in a discrete adjustment to our reported results. We're not going to create an adjusted number for that, but neither do we believe today. This cost structure represents the steady state economics of the business we are building. At the same time, this transformation cannot come at the expense of operating discipline. It has to result in a simpler, more efficient, and more profitable Hertz. And that is the goal. And importantly, these initiatives build on one another, improving the core rental business, moving more of the network toward a capital like franchise model, building value and mobility, generating free cash flow.

And addressing our capital structure are all components of the same economic plan, the plan that creates a higher margin, more cash generative and less capital intensive hurts with multiple avenues for earning. and value creation and a stronger balance sheet. For decades, the rental car industry has largely been a single engine business. Deploy capital into a fleet, rent vehicles and earn a return on that capital. Over time, we are evolving into a business with multiple earnings and value streams. Core rental will remain the foundation, but we see meaningful opportunities to generate more capital efficient earnings through franchise revenue, mobility. Licensing and strategic partnerships. ORO is an example of that strategy and practice. The recently announced joint venture provides ORO dedicated capital to pursue its growth opportunities while Hertz retains the majority. Economic ownership. The ORO joint venture will continue to be part of our consolidated financials. And beginning in Q4, we will add a minority interest line to our income statement. With that, let me walk you through the. Third quarter in more detail, and then discuss the Q4 outlook and liquidity for the near term. For Q3, we generated revenue of $2.6 billion, up 5.6%, driven by continued commercial momentum in the. U.S. Gap net income for the quarter was $116 million and diluted gap EPS was 20 cents. Adjusted net income was $67 million and adjusted diluted earnings per share was 14.

Adjusted corporate EBITDA was $233 million, up $30 million year-over-year, and was our best quarterly result in three years. But it was also more than $40 million below the low end of our... Let me walk you through the major drivers. Global RPD increased 5.4%, with transaction days roughly flat. US RPD increased more than 8%. More importantly, we believe the RPD increase reflects more than... in the current pricing environment. The demand generation initiatives we've put in place, together with changes to our pricing algorithms and segment and location level optimization, are producing results that we believe have additional runway. We expect these trends to continue into Q4. and to remain an important contributor to the improvement in 2027. While our U.S. business continues to improve, given continued lower TSA volumes, we're adjusting our U.S. fleet capacity lower. At the same time, the international macro environment has weakened. International RPD declined approximately 60 basis points year over year, and we are also experiencing softer international residual values. Which increased global net DPU by approximately $5. All in, international results were approximately $30 million below our original expectations. Much of that pressure appears macroeconomic. And ultimately, we expect those markets to recover. But we're not planning the business around the timing of that recovery. We're actively reducing capacity across Europe and taking location-level actions to optimize profitability in the environment.

We have today. On the cost side, adjusted DOE per day increased approximately 5.5% year-over-year. Approximately 240 basis points of that increase is due to more revenue-related expenses associated with higher RPD and was contemplated in our guidance. But the largest incremental pressure came from collision and maintenance expenses, which ran approximately 15 to $20 million above our expectations. the quarter. We have experienced both higher collision frequency as well as impact from vehicle repair costs that have meaningfully increased, particularly for parts and repairs on newer vehicles. Given what we're seeing across fleet types and geographies, we are planning for repair costs to remain elevated. That makes the work we're doing to manage the cost within our control even more important. On repairs, we're focused on reducing costs through better repair planning, greater use of internal capabilities, more effective sourcing and parts utilization, and improved work scope management. In addition, in partnership with Samsara, we're investing in a unified maintenance system that will provide a more comprehensive view of fleet location and health, helping us better predict maintenance needs and optimize fleet planning and inventory parts management. Implementation is underway, and we expect to begin seeing results next year. We're also continuing to drive labor productivity and vehicle utilization through a number of initiatives.

That includes increased automation through skip the counter and AI tools, enhanced labor planning, greater use of flex staffing and process and technology. Improvements enabled by Daytona, our technology developed in partnership with Palantir to improve vehicle turn throughput and productivity that is beginning to deliver results. The other side of that equation is damage recovery. While the vast. The majority of vehicles are returned undamaged. We incur roughly $200 million annually in unrecovered damage expense. We see a meaningful opportunity to improve that by collecting better insurance. Information, improved damage documentation, and creating a more effective recovery process, as well as pricing our insurance product offerings more effectively, all while maintaining a transparent and fair customer experience. From an accounting perspective, an improvement in damage collections would generally be an increase to revenue with gross repair expenses showing up in DOE. This is also why we increasingly look at the spread between RPD and DOE per day, rather than either metric in isolation. Ultimately, what matters is our ability to grow the revenue generated from each rental day faster than the operating costs required to produce it. In Q3, the RPD to adjusted DOE per day spread improved by $1.36 globally, or 5.4% year-over-year. In the U.S., the improvement was more than $2.50. That's progress.

So, candidly, we were pushing for more. The underlying U.S. improvement was meaningful, but some of that benefit was offset by the pressures in international and the other cost areas I just described. Net DPU for the quarter was $2.50. $285 per month, consistent with our previous views. We continue to see reasonable pricing in our model year 2027 fleet purchases, although total volumes remain somewhat uncertain. Our fleet remains young, which gives us flexibility as we progress. Through the 2027 fleet buying cycle. SG&A increased $15 million, primarily due to higher sales and marketing expenses. As a percentage of revenue, SG&A was 9.8%, nearly flat. Year-over-year. And on capacity, our fleet and transaction days were both roughly flat year-over-year, and recall activity improved year-over-year, in line with our expectations, albeit still elevated versus normal levels. We ended the quarter with not... 946 million dollars of liquidity, including cash and cash equivalents, and available capacity under our revolving credit facility. Looking ahead, another key area of opportunity is driving profitability at the location. and transaction level. We need to be diligent that the rentals we accept and the locations we manage all justify the capital it takes to operate them. We're becoming more aggressive about strategically reallocating fleet towards market. It's channels and customers where we can generate attractive returns and that's reducing unprofitable volume and under poor underperforming locations. Well, that approach could result in a smaller fleet and fewer.

Transaction days in Q4 and into 2027, we're comfortable with that trade if it produces better margins and stronger returns on capital. We will continue to consider the value of the overall network. But ultimately, every location and part of the business has to earn an appropriate return. The same capital discipline we're applying to Hertz at the enterprise level needs to exist at the local level. We're not trying to maximize fleet size. or rental days. We're trying to maximize profitable rental days and the return we generate on the capital deployed to produce them. Turning to Q4, we expect the core U.S. business to remain strong while international markets are likely. to remain pressured. Global RPD is expected to increase mid single digits. In total, we expect adjusted corporate EBITDA to be in the negative 50 to 100 million dollar range. This is lower than our price. Our expectations due to the previously mentioned softness in international markets, lower TSA volumes, as well as elevated collision and maintenance maintenance costs. But the midpoint is more than 100 million dollars better year over year. NetDP. It's also expected to be slightly higher than our previous expectations, which should be in the two hundred and ninety to three hundred dollar range for the quarter. The higher range is due to losses on the higher volume of vehicles we expect to sell in the quarter. Also, as we scale ORO, we're evaluating its fleet strategy to ensure its fleet is best aligned with needs and economics of the business going forward.

That work remains ongoing and we are still evaluating the timing. and potential impact. We continue to believe ORO will be an important contributor to our growth over time and getting the fleet right will be an important part of realizing that opportunity. Now, looking ahead to 2027, despite the near term pressures were described. Our view of the earnings opportunity remains significant. We expect adjusted corporate EBITDA to be in the range of $500 to $800 million for next year. The middle of this range is similar to our prior views of 2027. ...being at least cash flow breakeven. The major drivers of the year-over-year improvement for 2027 are straightforward. It's about widening the spread between RPD and DOE per day, lowering DPU as we improve total... ...fleet economics, and leveraging SG&A as the business streamlines. Those are the key levers that will allow us to convert capacity discipline into higher margins and stronger returns. We also expect to make... ...for progress toward a larger franchise mix that should enhance the capital efficiency and liquidity profile of the business. However, the timing and transaction details of individual franchise transactions can make the EBITDA... ...as well as the liquidity impact difficult to forecast precisely. As a result, our current 2027 adjusted corporate EBITDA outlook does not assume any impact from additional franchise conversions or expansion.

However, we expect to see the liquidity benefits of our franchise conversions likely beginning in late Q1 or early Q2, and more importantly, we do believe that we could potentially see more than $500 million of proceeds in the... the year from these conversions. Now, let me back up and spend a minute on liquidity, primarily Q4 in the early part of 2027, because I know that's an important topic. Given our expected EBITDA performance in the second... ...and half of 2026, we now expect to finish the year with approximately $800 million of liquidity, compared to our previous view of approximately $1 billion. And this, again, does not include any strategic transactions. Importantly, this outlook continues to include the repayment of the $200 million of bonds maturing in early December. We remain committed to the ongoing actions to manage liquidity, including sell leasebacks of certain owned properties, and operating a somewhat small... ...or fleet. Plus, we are also evaluating opportunities to manage fleet investments more evenly throughout the year, which could reduce the seasonal pressure on liquidity while simplifying fleet and rental operations. Taking these factors together, we believe we have sufficient liquidity to operate the business while continuing to execute our strategic priorities. And lastly, as we discussed last quarter, we remain focused on increasing flexibility in our capital structure and upcoming...

debt maturities. While we don't have any additional updates to share with you today, we hope to have additional information to share with you on or before our next earnings call. So stepping back, we know there is more work to do, but we should also recognize the progress we've made. We've accomplished a lot in a... relatively short period of time, and many of the changes we've made are still early in their impact. I believe the value of that work will become increasingly evident as we move forward. We have real momentum, and I'm excited about the opportunity ahead. So back to you, Gil.

Your first question

comes from Chris Warunka with Deutsche Bank. Chris, your line is open. Please go ahead.

Chase. Rajat, your line is open. Please go ahead.

From the line of Stephanie Moore with Jeffries. Stephanie, your line is open. Please go ahead.