Q1 2022 Hertz Global Holdings Inc Earnings Call

Welcome to the Hertz Global Holdings first quarter two earnings call. Currently all lines are in a listen only mode.

Following management's commentary, we will conduct a question and answer session I would like to remind you that this afternoon's call is being recorded by the company.

I would now like to turn the call over to your host Johan Robinson, Vice President of Investor Relations. Please go ahead.

Good afternoon, everyone and thank you for joining us by now you should have all of our earnings press release and associated financial information.

Also provided slides to accompany our conference call that can be accessed on our website I.

I would like to remind you that certain statements made on this call contain forward looking information forward.

Forward looking statements are not guarantees of performance and by their nature are subject to inherent uncertainties actual results may differ materially any forward looking information relayed on this call speaks only as of today's date and the company undertakes no obligation to update that information to reflect changed.

Stances.

Additional information concerning these statements is contained in our earnings press release and in the risk factors and forward looking statements section of our 2021 Form 10-K , and our first quarter 2022 Form 10-Q filed with the SEC and on the Hertz website.

Today, we'll use it to non-GAAP financial measures, which are reconciled with GAAP numbers in our earnings press release available on the Investor Relations section of our website, we believe that our profitability and performance is data demonstrated using these non-GAAP measures.

Comparisons discussed will exclude the effects of Donlin fleet leasing and management business, which we sold in March 2021.

On the call. This afternoon, we have Stephen <unk>, our Chief Executive Officer, and kidney Chung, our Chief Financial Officer, I will now turn the call over to Steven.

Thank you Johan good afternoon, everyone and welcome to our first quarter earnings call. This is my first call as the new CEO of Hertz and I look forward to speaking and meeting with many of you in the coming weeks and months.

Let me start by saying how proud I am to be a part of this company. My first 60 days have been exciting and it provided me with valuable insights into the business. Both in terms of what we do well and equally where we need to improve.

Spent considerable time with our senior leadership team as well as our colleagues in the field at locations across the country.

My initial impressions are uniformly positive and consistent with what attracted me to the opportunity to lead this company.

Hertz possesses an extraordinary brand a brand that is commercially powerful and that aligns well with other emerging leaders in mobility. It is also a brand that attracts talent both in terms of retention and in bringing new talent to the company.

<unk> benefits from an exceptionally resilient workforce with employees that have long tenure at the company with a deep appreciation for and relationship with our customers. These tenured employees combined with new and innovative talent is a powerful combination.

Hertz enjoys an exciting first mover advantage with electric vehicles now deployed across more than 30 markets in rack and PNC a considerable portion of our fleet will be electric by year end with promising economics as Evs command higher pricing and drove lower operating costs. We are benefiting from early performance analytic.

And a growing roster of OEM partners.

And of significance Hertz operates from a position of financial strength. Following its reorganization with impressive cash flow conversion, our renewed focus on returns low leverage and a disciplined fleet size that is more imbalance with demand at better margins than where the industry has been historically.

I took the CEO seat it hurts because this company has the potential to re imagine its customer offering produce higher returns and grow through its participation in the mobility equation through improved technology and better use of data.

Hertz will continue to move people and things as it has throughout its 103 year history, except we will do it now in the context of a changing mobility landscape. We are building a more diversified fleet, including electric vehicles, and a wider set of customer channels, including individuals corporates and ride sharing.

At its core and borrowing from my past I have come to view Hertz as an asset management business that combines vehicle purchasing renting and disposition into a single analytical framework against which we measure returns with a renewed focus on customers and greater attention to return on our assets. The hertz of the future will be <unk>.

<unk> different from the Hertz in the past.

There is much to do the journey to improve our technology is underway from the use of mobile phones to the deployment of telematics to the incorporation of artificial intelligence Hertz will be in a better position to serve our customers to price our assets and to manage our business. We are building in the cloud with API architecture to enable.

Hertz to partner with others, we will have nearly the entire north American fleet equipped with telematics by year end.

All technology need not be built by Hertz is we can embed existing advancements in our systems at lower cost.

Whats more with a growing EV fleet and a network of charging stations on our premises expanding to 3000 across 80 markets by year end, we will participate in the in the development of a new large scale charging network being can see both in the U S and abroad.

<unk> parties include governments private capital energy companies and infrastructure investors as the mobility ecosystem changes Hertz will play in it and grow with it too.

To accomplish our objectives, we must compete in the race for talent on this score we are beginning with an exceptional base as I noted I have met with some of our hurts professionals, who have been with us for $25 40, and even close to 50 years.

We are also attracting new talent with a focus on engineering technology and product design to a new and exciting opportunity it hurts, including our announcement. This morning of a new chief product development officer, and recently around our new General Counsel.

We also implemented a companywide profit sharing program, which means now now all fruits employees will participate in our success and we will be awarded with cash bonuses as we hit profitability and customer satisfaction targets combining.

Combining young innovative talent with technology will be a priority for the company in the pursuit of our strategic objectives.

The results in the first quarter, which Kenny will detail tell a story of two halves.

The first six weeks of the quarter were softer than expected due primarily to the impact of <unk> and lower volumes by late February we began to see demand rebound and our results for the back half of the quarter compensated for the initial softness.

March was the first month since the onset of the pandemic where revenue exceeded its 2019 level and we are seeing that momentum continue into April .

The progressive improvement in rentable utilization from January through February into March moving from 66% to 80% across the quarter was a good indicator of that momentum as well as a reflection of stability in demand and solid management of the fleet.

Total revenue for the quarter was $1 8 billion or 57% improvement from the prior year period, and adjusted corporate EBITDA was $614 million a margin of 34%.

While a portion of our results are unquestionably attributed attributable to positive market forces. They also reflect pricing discipline structural improvements made to the business and strength in the residual value of the fleet.

Current conditions provide us with an opportunity to invest in our future and to reduce our equity base through share repurchases.

Like others in the industry, we are experiencing the impact of constraints on the supply of new vehicles as well as certain inflationary cost pressures.

Remains difficult to source fleet to meet demand and this dynamic may well persist into 2023.

The recent industry dynamics of limited fleet supply combined with rapid post COVID-19 recovery of travel have led to demand for rental cars materially exceeding available supply, which is reflected in pricing given.

Given these challenges our organization remains operationally flexible and careful on the cost side, we are keeping cars longer buying low mileage pre owned vehicles and in fleeting new car supply, including electric vehicles more quickly than before.

We're also being careful to dispose of older vehicles from the fleet so as to ensure quality of product as our cars age. We are taking care to way elevated used car prices against potential rental earnings and.

In time, our dispositions to maximize asset returns notwithstanding strong topline performance now is the time to get prepared for as and when market conditions turn.

Impressively our strong results this quarter were achieved while corporate and international inbound activity remained considerably below pre pandemic levels domestic leisure travel Nonetheless remains strong coming into the high summer season as business travel returns. We are focused on serving the highest quality highest margin.

Demand offered in the market at any given time.

In aggregate, we expect the return of corporate and international inbound activity to be accretive to our earnings and margins for the balance of the year.

In my first 60 days, we have established near term work plans to address our core technology stack systems architecture changes to the App and various other components of the customer journey.

Progress will be real and incremental and we will report on it as such as we enter the summer peak season, we have already initiated enhancements to the customer experience. Our objective is to is to provide customers with a seamless digital experience every step of the way in short to take the hassle out of renting a car. This begins.

With the App, which must be re imagined early progress in technology won't always be visible to our customers that the experience will get better over a manageable time period.

We have multiple pilot programs currently underway to field test certain touchless exit gate and rental experiences.

Learnings here will be invaluable as we scale. These initiatives. We are also running a pilot to move our insurance replacement business from a heavily paper based system onto a digital platform.

Earlier this week, we announced that we will be collaborating with Amazon web services to modernize and digitize the herds customer experience and key components of our new mobility platform, such as enhanced data analytics and vehicle telematics. We're also engaged with Oracle on the upgrade of our back end systems and with stripe on improvements to our.

Payment systems. These initiatives will improve the efficiency and integrity of our operations and equip us with the tools to improve customer experience.

On the topic of customers I want to address the ongoing media coverage around the false arrest litigation. Let me first note that the overwhelming majority of these cases involve renters, who have kept our vehicles well beyond the due date and ignored repeated requests from Hertz to return our cars.

In those instances, we have a responsibility to secure our assets and protect the company.

In the minority of cases, where customers were negatively affected through no fault of their own as I have said publicly we will do right by them our policies and procedures are designed to diminish the possibility of innocent customers being impacted in the future.

While the affected group is a fraction of a percentage of the millions of rentals, we process a year, even one customer being negatively and unfairly impacted is too much the task to fix this belongs with me as the CEO of the company.

Let me pivot to our strategy around electric vehicles, where our momentum continues we've expanded our tesla rental offering to more than 20 markets and we intend to be in 40 markets with Tesla is by year end.

Looking forward, we are excited to take in additional model three and model Y vehicles over the course of the coming quarters.

<unk> for the model wise have commenced in California, and the rest of the country will follow soon.

Our recent partnership with Polestar is yet another important milestone in our EV journey. This partnership stretches over five years and aims to bring 65000 polestar two vehicles into our fleet.

We continue to talk to multiple EV manufacturers to accelerate the adoption of electrification of our fleet, while promoting a lower carbon footprint and I would like to see more than 30% of our fleet being electric by the end of 2024.

Our EV partnership with Uber also continues to grow and stretches across over 30 markets in the United States. The utilization rates. We are seeing on this portion of the fleet are well over 80% and we continue to experience strong driver demand supported by the increased earnings. These drivers can generate by renting from hertz versus outright owner.

Their ship.

The longer rental periods typical of this segment mean fewer vehicle turns and meaningfully lower variable costs. This channel also provides us with greater flexibility to pivot our vehicles between rental and ride sharing so as to make better use of our assets.

We are also continuing to see strong progress with our Carvana partnership several thousand cars have been sold through the Carvana platform and we are very pleased with the results providing us with a material uptick prices found in the wholesale market.

All of these initiatives are expected to be earnings accretive for Hertz.

Looking ahead, we do not see demand for our services lessening anytime soon and in fact, all indications point to an extremely busy summer this coupled with our high operating leverage and attention to the risks of supply chain and cost control gives me confidence that we are well positioned for the next quarter and the balance of the year.

I equally have confidence that we are taking the right steps to position. This business for success in an evolving mobility landscape from the cars, we acquire to the customer experience and the products, we offer to the expanding channels of customers with whom we engage to the increasing efficiency with which we price and manage our fleet to the way in which we.

Dispose of our fleet Hertz now has execution Roadmaps and technology plans to elevate its competitive and strategic position now.

Now I'll turn it over to Kenny to walk you through our results in more detail.

Thank you Steven and good afternoon, everyone.

We continue to execute on our strategy of focusing on profitable revenue growth sustained discipline with fleet size utilization and productivity.

Our first quarter adjusted EPS was <unk> 87.

And adjusted corporate EBITDA was $614 million of margin as Steven noted a 34%.

Our revenue for the first quarter was $1 8 billion, 57% higher than in 2021.

This was slightly higher than the estimate that I put forward on our last call and masked. The fact that this was really two different periods within the quarter as mentioned earlier.

But first six weeks were weaker than originally expected due to omicron, but march more than compensated for that.

Our performance in the back half of the quarter was due in large measure to improve rates, primarily driven by leisure customer demand.

Our disciplined pricing together with structural improvements we've spoken about previously lesser revenue per unit per month of <unk> hundred $26 up 26% from 2021.

Within Q1, our RP used sequentially increased from approximately a $100 in January to over $600 in March driven by sequential improvements in utilization and pricing.

I should highlight that effective from Q1, we've revised our calculation of monthly revenue per unit or total RP view to use average rental vehicles as the denominator.

Average rental vehicles excludes vehicles for sale on the Companys retail loss or actively being sold to other disposition channels and are therefore available for rent.

We believe this is a better measurement of productivity of our rental fleet as it is unaffected by fluctuations in our disposition activity for.

For clarity the calculation of depreciation per unit remains unchanged and includes all cars in the fleet as these remain subject to depreciation.

As I've said before we are keenly focused on generating healthy revenue that is more accretive to the bottom line and we are deliberate about pursuing high quality business with <unk>.

Worked hard to permanently improve our business from a go to market standpoint.

But market forces on pricing are a function of limit supply and recovering demand.

Depreciation per unit per month for Q1 was the gain of $40 instead of an expense which is within the range. We previously guided.

As explained in detail on our Q4 call. This is a result of todays strong market for used cars.

As we fleet up for our spring and summer peak seasons, and as we rotate more expensive cars into the fleet. The number of fully depreciated vehicles will decrease as such we continue to expect monthly depreciation per unit increased sequentially through the remainder of 2022 normalizing towards the end of.

Of the year for.

For Q2, we expect depreciation per unit per month to be between 110 and $130.

We expect full year monthly <unk> to be between 175 and $225.

Our quarterly estimates of depreciation are based on our fleet plan composition vehicle acquisition and disposal amounts and related holding periods.

Present, and future market conditions factor into vehicle cap costs and residual value and therefore also impact depreciation.

These factors are also relevant in assessing our OE in connection with both acquisitions and dispositions of vehicles.

Now moving to costs more broadly.

Like most companies in the U S and as Steven mentioned, we also experienced inflationary pressure during the quarter, which impacted us primarily in three ways first.

Higher vehicle acquisition cost, which increased gross depreciation second higher operating costs, resulting from labor shortages and increased employee compensation and third higher maintenance costs for our vehicles due to increased pricing of parts and service labor.

We see these as being industry Wi factors that needs to be offset by pricing and other initiatives as.

As we mitigate these challenges we will emerge a more operationally efficient organization now.

Notwithstanding these immediate challenges we have several ongoing initiatives that drive additional productivity and operational efficiencies, including hiring at the field level to avoid costly outsourced labor and bringing on more mechanics, and leveraging partnerships with vendors to meet the maintenance needs of the fleet.

We anticipate that cost inflation will further promote industry discipline and ensure optimal allocation of resources across the board.

Overall, the permanent cost improvements, we have made and are making to the business have helped us to mitigate these inflationary pressures as a percentage of revenue and SG&A for the quarter were 800 bps or $145 million better than 2021 and 250 bps.

Or $45 million better than 2019.

In terms of our capital structure and liquidity, our balance sheet remains very healthy positioning us well to fund our strategic initiatives and return value to shareholders via our share repurchase program.

As of March 31, our liquidity was $2 7 billion.

It is comprised of $1 5 billion of unrestricted cash and nearly $1 2 billion available under the revolving credit facility.

During the quarter, we increased our RFP app capacity by $220 million to nearly $1 5 billion, which creates additional financial flexibility and enhances our corporate liquidity.

We also raised approximately $2 five.

<unk> through the issuance of medium term notes as part of our ABS structure. The proceeds were used to repay existing revolving ABS debt, which in turn freed up incremental capacity for future growth.

We also increased the commitments under the variable funding notes by $200 million.

The $3 2 billion.

Turning now to our cash flow for the quarter and our capital deployment strategy more broadly.

There are several possible uses of our cash which needs to be considered together and assessed on a relative basis. They are not mutually exclusive we consider investments in our revenue generating asset base, our fleets and these physicians are based on long term calculations on growth a return on investments.

Capital allocation requires that we are mindful of the balance between five capacity to demand a return on asset.

In making an investment decision on fleet, we considered the potential for a differentiated return on investment at between Evs and ice vehicles. As an example, whereby the return on Evs may prove higher because of elevated RPT lower operating costs and the possibility of extended depreciable life.

We also considered non fleet capital expenditure, which mainly consist of information technology and infrastructure all consistent with the strategy of improving customer experience and operational efficiency that Steve spoke to earlier here again, we focus on ROI of these investments in terms of improving fleet deployment and customer experience.

As we have over the past several quarters, we consider the return of cash to shareholders.

Given our net leverage governor of up to one five times and our current cash generating ability. We are in a position where we can invest in growth and return cash to shareholders without placing pressure on the balance sheet.

As of April 21, we purchased approximately 55 million shares under the $2 billion plan with approximately $800 million.

I need to spend before we exhaust the current plan, we will be approaching the board where proposals around subsequent plans.

Turning now to some specific cash flow numbers for the quarter. Our adjusted operating cash flow was $677 million or non fleet Capex was $29 million and net fleet Capex was $569 million, resulting in adjusted free cash flow of $79 million this quarter.

As we rotate our older cars and brought in new or high quality pre owned cars. We fund those at about 20% of equity we generated sufficient cash flow to fund our fleet growth and the reduction in liquidity was related to share repurchases.

Let me explain for a moment on how I see cash flow playing out for the full year.

That cash taxes, and working capital will be approximately 10% of EBITDA and that our non fleet capex will be around $250 million to $300 million for the year.

Given the investment in fleet, we are making this year, we expect our net fleet capex to be between one to $1 5 billion, depending on market conditions to reflect the equity component of our fleet rejuvenation and growth investments bear in mind. This is mostly funded by the gains realized upon disposals of other.

<unk>, which are reflected in our reported depreciation and therefore embedded in EBITDA.

We know that people are acutely focused on our view of EBITDA and cash flow once the market normalizes.

As we have told you in the past we continue to believe that at pre pandemic demand levels industrywide depreciation rates, our normalized annual EBITDA generation will be approximately $1 5 billion excluding.

Excluding initiatives such as the transition towards Evs, the appliance or ride sharing fleet and a carvana and amex GBT relationships.

From that EBITDA baseline, we would normally expect free cash flow conversion of at least 70%. This is because once our aggregate fleet value and depreciation returned to a more normal levels. We expect that EBITDA will adequately reflected the entirety of our fleet expense and net fleet capex will be minimal.

Finally, with a view forward and consistent with what we are seeing across the travel industry. The positive trend. We saw in March is continuing into Q2 with month to date <unk> is similar to the strength. We saw in March we generated 20% more EBITDA in March than we had originally expected due to fleet tightness and strong demand.

We do not see any abatement of the limited vehicle supply as Steven mentioned earlier with the current geopolitical environment impacting the supply chain constraints I believe industry fleets will continue to be tight and that pricing and residual value of will remain elevated as a result.

Q2 revenue has historically been higher than Q1 by about 20% due to seasonality given the momentum we are seeing in our business. We expect our performance for Q2 to exceed Q1 by 30% to 35% with that let's open the call for Q&A.

Thank you we will now open the line for questions, Ladies and gentlemen, if you would like to ask a question at this time. Please press star one on your telephone keypad.

If your question has been answered any which Jim will soften the queue you may press the pound key.

Also please limit your questions to one question for speaker and one follow up.

Your first question comes from the line of Chris <unk> from Deutsche Bank. Your line is open.

Hey, good afternoon, guys and thanks for taking our questions sure Hey, Chris.

Stephen Yes, Theres been mentioned of the $1 5 billion kind of as a normalized EBITDA range, which I think most people think of as 2023 or beyond.

As new CEO , what are you what are some of the kind of the opportunities and threats to that to that number yeah sure. So thanks, Chris I appreciate the question.

With Kenny and his prepared remarks.

Talked about normalized EBITDA in the context of 19 as a reference point. So let me come at it slightly different angle, which is let's look at current conditions kind of as a delta to where we think normal is so let's look first at the demand side on.

On the demand side notwithstanding elevated it is were still shy of where I think normal demand will sit so you look at leisure in the rack business. It's at about 90% of where it was in 19, So limited amount to see there but.

If you look at corporate and you look at inbound. So these are international travelers coming to the United States is considerable demand that can be recovered to get us to a normal state of affairs. So thinking about corporate travel corporates now running at about 63% of where it was in 19 and inbounds are running only at about 35% and that will.

Change as Covid measures and the like of entry into the United States will change. So on the demand side. There is still room for improvement to get us to a normalized state.

When you look at the supply side right typically through fleet and I think as we've said.

More limited conditions around supply much as we will get our fair share of it I think persist in through 'twenty, three maybe a bit beyond.

And so there I think as fleet comes on to more normalized levels, you will see us grow our fleet, but grow it in the context of demand Thats. There So fleet will increase.

We can sustain utilization at levels that we're seeing now in March and into the second quarter.

Let's assume there is some softness in price, it's not going to stay as elevated so if one assumes that we take a 20% or 25% reduction right to what we're looking at on rate and then get to more normalized depreciation.

The fact is that at more modest margins. Okay. We're going to produce one 5 billion the upside to that okay, because as Kenny referred to it. We haven't included is look at both sources of incremental revenue and cost reductions. So we're not thinking about ridesharing and Uber growing or <unk>.

What we can sell through on an increased basis through carvana or collaborative marketing efforts that are out there or for that matter. The benefit we're going to get as more electric vehicles come in and the <unk> on those are higher than what we're seeing on ice and on the cost side much of what I talked about in the context of certain technology.

<unk> and alike.

I have a better pricing engine, we will take our out of service down.

Cloud migration of our overall platform will generate meaningful cost reduction in the context of what we spend on older generation technology.

So those are a bit of the puts and takes I'm, just giving you kind of my own take looking both at supply demand and what increment, we can generate to there and again 2019 is a good gut check but I just wanted to offer you a slightly different perspective.

Then just to simply revert back to 19.

Yes, no. Thanks, Steve very helpful and just as a follow up.

Kind of on the fleet side.

You mentioned that the ERP you a bit of the.

Things Youre, bringing in which you have a lot of evs coming into the fleet does that make you reconsider wanting to get to the total fleet even back to 19 levels. Even if demand gets there is there is there a case to be made.

Smaller with different fleet because of the fleet the cost of that fleet is going to look a little bit different and so therefore really totally zoned in on.

On <unk> and not on matching the fleet to demand.

Yes.

Yes, I mean.

My view on this is that this is managing.

A set of assets, Okay, and sweating the ROA on your fleet, so unless focussed on the aggregate amount of fleet.

I'm more focused on making sure them sizing fleet into demand and that the composition of the fleet is between electric vehicle and ice is taken into consideration in part because I think the ROA on the Evs will be higher they will be higher because they attract a higher rate and they carry with them appreciably lower.

<unk>.

Operating costs with respect to maintenance and otherwise and I think on.

The forward Theres more good to be had on depreciation of those vehicles, because I think we're operating with very limited history, but in the end I think the life of those vehicles will be longer and the depreciation less. So my point to you is that I'm not looking to go back to a prescribed fleet number I want to grow fleet in the context of sweating the.

Meeting the demand that's there and looking at the mix of fleet in the context of where I can harvest the greatest margin on the fleet itself.

Okay very helpful. Thanks, guys.

Sure.

Thank you and your next question comes from the line of John Healy from Northcoast Research. Your line is open.

Thank you Big picture question for you Stephen and Kenny.

Getting a lot of questions about why we're out of the cycle and what's happening with the economy would just love to get your view.

Hertz is thinking about the economy and maybe how it hurts is different.

Relative to historical periods as maybe we encounter some potential economic turbulence. So would just love to hear your thoughts on kind of leading economic indicators and how youre planning as Nathan and maybe how that business might be more or less resistant to those pressures.

That come about cyclically.

Hey, John Yeah, It's Kenny I'll try to answer this one first so.

Thanks for the question.

A few things come to my mind as I think about your question right the potential downturn economic pressure I'll say two things here first and foremost we can fleet up and down our fleet very very quickly. Unlike other travel and hospitality peers, who can now with the fixed asset.

The name of the game for us regardless of any environment recession, or no recession or pressure is the match fleet to demand right below the demand curve right to maximize profit. The second thing I'd say is we are a very nimble company right, 70% of our cost base is variable and that provides flexibility as volume flexes up and.

Down and remember this is combined with the fact that we have a very.

Strong book of business off airport, which is resilient as proven at the peak of the Medtronic The second thing I'd.

Say that people talk about inflation.

My view is we don't view inflation as necessarily a bad thing for us as this creates more discipline across the industry in terms of pricing and asset allocation, which you can see currently the second thing I'd say is that in an inflationary environment car rental is not a bad place to be at Ashford utilizing an asset purchased at todays flash.

Oracle value and monetize them against the backdrop of rising rate environment and the last thing I'd say about inflation is that we continue to drive productivity optimize business processes and drive operational efficiencies to offset that and then the last thing I'd say.

I run the current environment as interest rates right.

I mentioned.

<unk> remarks, we have a really strong balance sheet, but if you think about debt profile, our debt stack, 70% of our total debt is fixed rate. So we are largely insulated from interest rate hikes, and we know we have caps in place as well on the BSN standpoint, So long story short.

While the current environment is dynamic as you pointed out our business model is resilient across a wide range of circumstances and by the way. We are we've been battle tested and we are students of the business. We entered a license study all aspects of the auto market since quite frankly, we participate in all aspects of it. So we're prepared for all scenarios.

John It's Steven the one other perspective ill offer you.

Is that I think rental car.

The rental car industry and the travel industry more broadly is going to be the beneficiary of what I would describe as a delayed consumptive response, meaning if you look across a range of other industries stimulus led to increased consumption.

In the back in the back half of 2021.

If you think about travel travel has not had that opportunity just yet largely by virtue of COVID-19 and restrictions that have been in place if I look at our forward book of bookings in the summer.

What is suggesting to me is that we may see delayed consumptive patterns around travel and we will be the beneficiary of that.

And as I said in response to the question that I was answering for Chris.

Just look at where we've yet to pick up the demand that indicates there is some delay to it so think about whats left on corporate demand come through and impressively. What's left on the inbound international travelers to the U S, which is a very profitable segment for us and so I think there's an element here where stimulus.

Through we saw that in the consumptive behavior of consumers, but it didn't necessarily materialize in the way in which I think it will in this summer and so that's just a broad perspective to offer you in the context of what the forward curve.

<unk> for the industry.

Great.

Really helpful and just one follow up question Kenny can you run us through the math on the view on fleet costs for the year again was that were those just.

U S comments or was that companywide and.

I was just hoping to kind of sketch out kind of.

175 to $2 25 number because it can be as high as maybe a number like 300 at the end of the year.

Okay. So yes, so let me go a bit deeper sense I'm sure I'll get more questions on depreciation so I'll hit it right now so as you think about this quarter right.

Call. It negative 40, if you bifurcate between growth depreciation, which is simply get recorded depreciation of the vehicle and then you gave on sale. If you bifurcate that youre roughly $2 23 of growth depreciation per car per unit per month, and $2 63, a gain per car per month per unit.

In a $40 right.

As you work your way into call. It Q2 now.

You're fully depreciate a vehicles.

Will decrease as I mentioned in the prepared remarks and that essentially if you do the math right.

If Q2 was call. It 100 to 120 and change then that means youre back half will normalize.

Closer to the $300 Mark.

In terms of depreciation so and then the the number ive given for the full year that is a that is a global number.

Great. Thank you.

Yes.

Thank you and next we have Stephen Grambling from Goldman Sachs. Your line is open.

Thank you. My first question is a big picture question for Stephen There are a lot of different views about what the future of mobility looks like and obviously there are a lot of moving parts, but as you were attracted to this opportunity what was your own framework for what that future looks like over the next call. It three to five years and how are you balancing moving the company towards that view, while also staying nimble if the future goes.

A different direction.

Sure. Thanks, Stephen I appreciate it so.

I'll answer that on a couple of levels.

First of all my view was that.

<unk> sits with an extraordinary brand.

Perhaps a brand that was worthy of an even better business, which I think we can build and that doesn't often happen.

In the context of mobility, there are enough really impressive players that are in and around those changes.

There I think hertz can align itself quite comfortably.

And we're already doing that obviously in the context of Tesla and Uber.

And carvana and the like and I think theres more to do there.

For me.

The forward path around mobility is all about us thinking now about the way in which we diversify the composition of fleet and equally think about diversification of our customer channels. So in the context of fleet, obviously, it's about combustion engine and electric vehicle and what that will mean and what that.

Carey's okay on the customer side. It means not just playing to rack, but also thinking about corporate and equally ride sharing and the forward view on what that might mean for fleet management overall.

In the context of corporate Theres, an interesting developing phenomenon, which is that the electric vehicle is turning out to be of great appeal to our corporate customer they need to rent cars to their employees, but they're equally through EV satisfying their own ESG and carbon footprint objectives and that sort.

An interesting dynamic there on the Uber side and translate that over through to lift or to a variety of other fleet players.

Imagine where hurts us in a position in this case to take Evs and rent them changing the consistency of product delivery and the economic dynamics to the driver what could we do with other fleets and other fleet management in the context of electric vehicles, there and so there's a forward path right that we can achieve.

I think all of this is meant to be achieved.

For a company that sits on an extraordinary mine of data, we have yet to sort of tap into it and we havent consumed it and analyzed it such that we can find ourselves in a much better position to sort of manage a fleet and serve interests that are ever changing electric fleets corporate customer.

<unk> and the like and so I think the forward here is really quite real.

And our ability to do it in ways that embed existing technology, So think about the mobile phone.

The phone can be used in a way to meaningfully improve the customer experience of an individual we can now geo locate cars. We can access the car we can use the <unk>.

Phone as the key Fob to start the car by the way we can identify you because your identification on the phone will change all of that changes the dynamic of what hurts can do with the rental business today with a forward view to mobility. So the younger demographic need not rent a car where fertilizer location.

We can preposition a car for them in another location. They can access it it can be a seamless proposition and all of that is using existing technology and embedding. It in the customer journey. So I think there are many ways that we can tap into the forward mobility prospect and the ability to do that with others is quite real.

And that was and is an exciting proposition for me and I think holds the promise of <unk>.

Realizing consistent and impressive financial returns to the company.

That's helpful and interesting as a follow up on the fleet side of your response is there any sense for how electric vehicle pricing has trended as you've rolled out more and you kind of alluded to this but.

Maybe it's too early to really see this in terms of differences in uptake versus.

I mean consumers versus business customers and then how youre just generally thinking about the pricing umbrella of these vehicles versus the base they become more ubiquitous.

Sure.

Well I think what we're seeing in in.

The early introduction of electric vehicles into the fleet is consistent with what we had analytically modeled in making the decision that the ROI on this segment of the fleet was attractive that is we're seeing elevated pricing.

Certainly interact and equally into ride sharing.

On the ride sharing side it carries the extra benefit of those rentals being longer four weeks. It means our touch point into those cars is appreciably less meaning we won't touch the car 345 times and the way in which we would in the normal fleet. So the operating the operating cost.

Associated with that is much lower the.

The maintenance while it's early the maintenance is lower we expect those maintenance costs to continue to be lower and utilization as an expression of demand in both the corporate.

Segment as well as in ride sharing and rack.

Which suggests to us that.

The demand is really is really impressive I mean, we're seeing waiting lists among uber drivers to take these cars.

And we're seeing very very quick uptake again at high utilization levels.

Across our across the consumer and the corporate side with Kenny I mean from a financial standpoint, I'm excited to say about the toughest coming in is validating our long term view of the economics being accretive to ice vehicles. So all right.

Our view is having a first mover advantage here is an invaluable here as the learnings are improving our daily operations and giving us a huge competitive advantage.

I'd also say one other thing which is in if one harbors a view that.

There will be forward softness for a variety of reasons right in price.

I think the Evs present as they grow within our fleet.

A pretty defensive floor, if you will as to where that pricing will go meaning we have a first mover advantage. They are a scarce component of the fleet just on a relative basis. Therefore, the ability to hold price I think is higher and so its just an exciting proposition for us.

We take more of these vehicles in and look to partner with more Oems on the intake.

Makes sense. Thanks, so much I'll jump back in the queue sure.

Thank you next we have Brian Johnson from Barclays. Your line is open.

Thank you I just wanted to talk a little bit more about the depreciation and particularly around <unk>.

What she used car sales and pricing outlook, but used car acquisitions as I'm sure you're probably aware there is some.

While down used car resellers, who were seen by the market in the most recent earnings results are buying used cars earlier in the year late last year at one price and then selling them at another so two questions one.

Can you give us some sense.

How your activity in the used car acquisition market was how that factors into your depreciation outlook and then number two it's comforting that you're guiding to about 110 next quarter.

The 500 number very similar to what's in our model and other analysts reference we do have.

Depreciation is normalizing as part of that but how do investors get some comfort that used car prices moderate slightly there isn't an overshoot and your depreciation numbers.

I'll, let Kenny start and then we'll come back.

I think one of the questions I think.

Youre alluding to you Brian is that how do we think about a normalized depreciation rate going forward as you know right now the back half exit rate closer to $300 as I alluded to earlier.

Here's how I think about it right. When you look at depreciation it's unfair to look at it in silo right you have to look at it in conjunction with other dynamics are PD.

Residuals cap cost just name a few right. So let me give you a quick stab at it.

Coincident that RPT residual cap cost right now at this very moment is all up by 3% to 40% versus pre pandemic right. So simple math is if GPU that use. An example rate went up to $500. You may say Wow, that's really high but RPE followed for 2000, and I think that economics, all day and all night right. So.

I think it's important to really look at depreciation and.

In conjunction with other variables and that goes back to the point about return on asset that that Stephen mentioned, alright, So honestly, even if you have that element.

I think I think I think the point that Kenny is making is the right one which is obviously we need to be mindful of depreciation and think about it in the context of how we manage the fleet and I'll come back to that but I think when Kenny and I manage the business we're looking at.

Dashboard that has multiple indicators on it okay. We're looking at the rate we're charging we're looking at utilization, we're looking at depreciation and you need to take those all in tandem now.

Mike.

Adherence to sort of as a good framework is we want to sweat the asset and therefore all of these are inputs to the return that the fleet is ultimately going to yield.

Us.

Now in the context of our own behavior in the used car market. We are at the moment, both a buyer and a seller. Okay. So we are buying low mileage high quality used cars.

The returns are attractive in a market that's displaying the kind of demand relative to supply that it is.

At the same time, we are looking at selling.

Portions of our of our of our fleet because they are high Molly.

High mileage cars, there are deteriorating value, it's not a product that we want to put a customer in and when we do the math and we do the analytics.

Harvesting at the current elevated a residual level or car price on that through carvana or any other channel is in excess of the present value of the rental revenue that were otherwise going to take in that's the kind of dynamic we need to go through as both a buyer and a seller.

And so I think that answers your question, but that's how we're thinking about this more broadly.

Okay. So youre not worried that you bought basically what youre, saying is used car acquisitions are a alternative in a tight market to new car acquisition.

Paula depreciation curve, obviously, you're renting them in the meantime, I think thats right and I think that equally I'm not I'm not standing in a static position, meaning if we start to see the market move okay. So.

Something happens in the relationship if you will between new car prices and where we're taking an expensive vehicles and what we're doing with respect to the residual on the use my view is that it's unlikely to move at a beta of one and equally it's not going to move on an overnight basis and so because we study. This all the time we're going.

To act right on where those numbers sit so the calculus that we do about the or keep the car or do you sell the car is in the context of a spot price relative to where we can earn rental money on the property itself. So we're going to be quick on this should these dynamics change, but again I think.

ROE is the broader context within which to think of it.

Okay. Thank you sure.

Thank you and our next question comes from the line of Ian Zaffino from Oppenheimer. Your line is open.

Great. Thank you very much.

As far as.

I know you guys mentioned Carvana is saying you got an uptick is there any more color you can maybe give.

Give us surrounding that maybe how much was the uptake or.

Do you expect to see continued upticks and how many vehicles do you think you can actually.

Move through that channel, how do we think about that.

Sure well I think we need to stay away from the specifics of the arrangement.

A host of different competitive reasons, but let me shed a little bit of light on it what we're seeing in carvana.

Is a material uptick to what we could harvest in the wholesale market Carvana. Therefore provides us with an incremental channel.

Alongside the Hertz used car retail channel that we have.

To sort of provide us with really interesting economics on the sale of the used car fleet I'd also point out, particularly relevant to the last question in the last exchange.

Anytime you have value itself of an incremental channel to move used cars. You. Therefore provide yourself with added flexibility to be quick and agile as and to the extent that there is changing circumstances in the market or pricing, but we are seeing through carvana.

Is perhaps more elevated in terms of volumes than what we had initially imagined and it's a good robust.

Channel for us that suiting us in the context of <unk>.

Material materially elevated prices relative to what the wholesale market provides.

This is kind of just to kind of dimensionalize potential how do you think about volume right in a normal year you usually we sold one third of our vehicles through our retail channel and two thirds through the wholesale auction channel Carvana is not cannibalizing the retail side of the house, which is the highest margin for us right from a disposition standpoint, it's really taken away from the <unk>.

Our auction sites, so again, it's accretive for our business and our margins.

Okay, Great and then as a follow up question.

I know, we had a nice discussion about ROA and investment in the business with a fleet, but I know you still have.

About $800 million left on your buyback but.

Based on kind of like your leverage ratios that you are talking about you can take on incremental leverage.

Just to reach your target and with that excess cash or capacity.

Where do buybacks fit in that and again I know you have some left on there but.

Are they mutually exclusive and how do we exactly think about that going forward.

Sure. So let me just say the following first in the context of what we were doing in the first quarter. We were in kind of a elongated blackout and therefore, what we were doing by way of volume was a prescribed volume.

Obviously, the opportunity for us to recalibrate the volume.

And reevaluate the volume of shares that will repurchase happens now occasions by the fact that we're having this earnings call and the earnings release, and therefore, we are free to sort of recalibrate. The volume that we want to do and we will do that.

My view is we will exhaust the existing program and we will roll into a new program as we pick up just the aggregate amount with among the management team and the board so.

That's just the mechanic of it as a philosophical matter I.

I think repurchase stands alongside what Kenny had articulated which is we have opportunity to invest in fleet, we have opportunity to invest in the business to render it more operationally efficient and we have the opportunity, particularly in this market to look at share repurchase and all three are always on the table in the context.

Of yielding attractive returns and so that's the philosophy will continue to take I think given the largest of the market in which we're in we can do all three we will do all three and I think we will pick up the pace of that repurchase now that we have earnings behind us.

And your math is right. We're one turn away from our Governor numbers. So this shows you that we have a lot of optionality and flexibility when it comes to capital allocation.

This is awesome. Thanks, guys.

No problem.

Thank you and our last question I will turn the call over back to RSV, Stephen Scherr for closing remarks, Sir.

Okay. So I want to thank you all for participating today I hope that today's call provided you with a better sense of the progress we've made the dynamics, we're seeing in the industry and the market in a better appreciation for the improved financial condition and prospects for the company I look forward to sharing further updates with you on our next call in and obviously meeting and visiting with many of.

Have you now sitting in my new seats, so with that we.

Thank you again for joining us.

Thank you presenters discipline.

<unk> Global Holdings first quarter tiny tiny do our next conference call. Thank you for your participation and good afternoon.

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Welcome to the Hertz Global Holdings' first quarter 2022 earnings call. Currently all lines are in a listen only mode. Following management's commentary, we will conduct a question and answer session I would like to remind you that this afternoon's call is being recorded by the company.

I would now like to turn the call over to your host Johan Robinson, Vice President of Investor Relations. Please go ahead.

Good afternoon, everyone and thank you for joining us by now you should have all of our earnings press release and associated financial information. We've also provided slides to accompany our conference call that can be accessed on our website I.

I would like to remind you that certain statements made on this call contain forward looking information forward looking statements are not guarantees of performance and by their nature are subject to inherent uncertainties actual results may differ materially.

The forward looking information relayed on this call speaks only as of today's date and the company undertakes no obligation to update that information to reflect changed circumstances. Additional information concerning these statements is contained in our earnings press release and in the risk factors and forward looking.

Section of our 2021 Form 10-K , and our first quarter 2022 Form 10-Q filed with the SEC and on the Hertz website.

Today, we'll use it to non-GAAP financial measures, which are reconciled with GAAP numbers in our earnings press release available on the Investor Relations section of our website, we believe that our profitability and performance is data demonstrated using these non-GAAP measures.

Comparisons discussed will exclude the effects of Donlin fleet leasing and management business, which we sold in March 2021.

On the call. This afternoon, we have Stephen Scherr, our Chief Executive Officer, and kidney Chung, our Chief Financial Officer.

I'll now turn the call over to Steven.

Thank you Johan and good afternoon, everyone and welcome to our first quarter earnings call. This is my first call as the new CEO of Hertz and I look forward to speaking and meeting with many of you in the coming weeks and months let.

Let me start by saying how proud I am to be a part of this company. My first 60 days have been exciting and it provided me with valuable insights into the business. Both in terms of what we do well and equally where we need to improve.

Spent considerable time with our senior leadership team as well as our colleagues in the field at locations across the country.

My initial impressions are uniformly positive and consistent with what attracted me to the opportunity to lead this company.

Hertz possesses an extraordinary brand a brand that is commercially powerful and that aligns well with other emerging leaders in mobility. It is also a brand that attracts talent both in terms of retention and then bringing new talent to the company.

<unk> benefits from an exceptionally resilient workforce with employees that have long tenure at the company with a deep appreciation for and relationship with our customers. These tenured employees combined with new and innovative talent is a powerful combination.

Hertz enjoys an exciting first mover advantage with electric vehicles now deployed across more than 30 markets and rack and PNC a considerable portion of our fleet will be electric by year end with promising economics as Evs command higher pricing and drove lower operating costs. We are benefiting from early performance analytic.

And a growing roster of OEM partners and.

And a significance Hertz operates from a position of financial strength. Following its reorganization with impressive cash flow conversion, our renewed focus on returns low leverage and a disciplined fleet size that is more imbalance with demand at better margins than where the industry has been historically.

I took the CEO seat at Hertz, because this company has the potential to re imagine its customer offering produce higher returns and grow through its participation in the mobility equation through improved technology and better use of data.

Hertz will continue to move people and things as it has throughout its 103 year history, except we will do it now in the context of a changing mobility landscape. We are building a more diversified fleet, including electric vehicles, and a wider set of customer channels, including individuals corporates and ride sharing.

At its core and borrowing from my past I have come to view Hertz as an asset management business that combines vehicle purchasing renting and disposition into a single analytical framework against which we measure returns with a renewed focus on customers and greater attention to return on our assets the hertz of the future will be.

Mentally different from the Hertz in the past.

There is much to do the journey to improve our technology is underway from the use of mobile phones to the deployment of telematics to the incorporation of artificial intelligence Hertz will be in a better position to serve our customers to price our assets and to manage our business. We are building in the cloud with API architecture to enable.

Hertz to partner with others, we will have nearly the entire north American fleet equipped with telematics by year end.

All technology need not be built by Hertz is we can embed existing advancements in our systems at lower cost.

Whats more with a growing EV fleet and a network of charging stations on our premises expanding to 3000 across 80 markets by year end, we will participate in the in the development of a new large scale charging network being can see both in the U S and abroad interested parties include governments private capital energy.

Companies and infrastructure investors as the mobility ecosystem changes Hertz will play in it and grow with it too.

To accomplish our objectives, we must compete in the race for talent on this score we are beginning with an exceptional base as I noted I have met with some of our hurts professionals, who have been with us for $25 40, and even close to 50 years.

We are also attracting new talent with a focus on engineering technology and product design to a new and exciting opportunity it hurts, including our announcement. This morning of a new chief product development officer, and recently around our new General Counsel.

We also implemented a companywide profit sharing program, which means now now all hurts employees will participate in our success and we will be awarded with cash bonuses as we hit profitability and customer satisfaction targets combining.

Combining young innovative talent with technology will be a priority for the company in the pursuit of our strategic objectives.

The results in the first quarter, which Kenny will detail tell a story of two halves.

The first six weeks of the quarter were softer than expected due primarily to the impact of <unk> and lower volumes by late February we began to see demand rebound and our results for the back half of the quarter compensated for the initial softness.

March was the first month since the onset of the pandemic where revenue exceeded its 2019 level and we are seeing that momentum continue into April the progressive.

The improvement in rentable utilization from January through February into March moving from 66% to 80% across the quarter was a good indicator of that momentum as well as a reflection of stability in demand and solid management of the fleet.

Total revenue for the quarter was $1 8 billion or 57% improvement from the prior year period, and adjusted corporate EBITDA was $614 million a margin of 34%.

While a portion of our results are unquestionably attributed attributable to positive market forces. They also reflect pricing discipline structural improvements made to the business and strength in the residual value of the fleet.

Current conditions provide us with an opportunity to invest in our future and to reduce our equity base through share repurchases.

Like others in the industry, we are experiencing the impact of constraints on the supply of new vehicles as well as certain inflationary cost pressures. It remains difficult to source fleet to meet demand and this dynamic may well persist into 2023.

The recent industry dynamics of limited fleet supply combined with rapid post COVID-19 recovery of travel have led to demand for rental cars materially exceeding available supply, which is reflected in pricing given.

Given these challenges our organization remains operationally flexible and careful on the cost side, we are keeping cars longer buying low mileage pre owned vehicles and in fleeting new car supply, including electric vehicles more quickly than before.

We're also being careful to dispose of older vehicles from the fleet so as to ensure quality of product as our cars age we are taking care to way elevated used car prices against potential rental earnings.

And time, our dispositions to maximize asset returns notwithstanding strong topline performance now is the time to get prepared for as and when market conditions turn.

Impressively our strong results this quarter were achieved while corporate and international inbound activity remained considerably below pre pandemic levels domestic leisure travel Nonetheless remains strong coming into the high summer season as business travel returns we are focused on serving the highest quality highest.

When demand offered in the market at any given time in.

In aggregate, we expect the return of corporate and international inbound activity to be accretive to our earnings and margins for the balance of the year.

In my first 60 days, we have established near term work plans to address our core technology stack systems architecture changes to the App and various other components of the customer journey.

<unk> will be real and incremental and we will report on it as such as we enter the summer peak season, we have already initiated enhancements to the customer experience. Our objective is to is to provide customers with a seamless digital experience every step of the way in short to take the hassle out of renting a car. This begins.

With the App, which must be re imagined early progress in technology won't always be visible to our customers that the experience, we will get better over a manageable time period.

We have multiple pilot programs currently underway to field test certain touchless exit gate and rental experiences learnings here will be invaluable as we scale. These initiatives. We are also running a pilot to move our insurance replacement business from a heavily paper based system onto a digital platform.

Earlier this week, we announced that we will be collaborating with Amazon web services to modernize and digitize the hertz customer experience and key components of our new mobility platform, such as enhanced data analytics and vehicle telematics. We're also engaged with Oracle on the upgrade of our back end systems and with stripe on improving.

To our payment systems. These initiatives will improve the efficiency and integrity of our operations and equip us with the tools to improve customer experience.

On the topic of customers I want to address the ongoing media coverage around the false arrest litigation. Let me first note that the overwhelming majority of these cases involve renters, who have kept our vehicles well beyond the due date and ignored repeated requests from Hertz to return our cars.

In those instances, we have a responsibility to secure our assets and protect the company.

In the minority of cases, where customers were negatively affected through no fault of their own as I have said publicly we will do right by them our policies and procedures are designed to diminish the possibility of innocent customers being impacted in the future.

All the affected group is a fraction of a percentage of the millions of rentals, we process a year, even one customer being negatively and unfairly impacted is too much the task to fix this belongs with me as the CEO of the company.

Let me pivot to our strategy around electric vehicles, where our momentum continues we've expanded our tesla rental offering to more than 20 markets and we intend to be in 40 markets with Tesla is by year end.

Looking forward, we are excited to take in additional model three and model Y vehicles over the course of the coming quarters.

Rentals for the model wise have commenced in California, and the rest of the country will follow soon.

Our recent partnership with Polestar is yet another important milestone in our <unk> journey. This partnership stretches over five years and aims to bring 65000 polestar two vehicles into our fleet.

We continue to talk to multiple EV manufacturers to accelerate the adoption of electrification of our fleet, while promoting a lower carbon footprint and I would like to see more than 30% of our fleet being electric by the end of 2024.

Our EV partnership with Uber also continues to grow and stretches across over 30 markets in the United States.

Utilization rates, we are seeing on this portion of the fleet are well over 80% and we continue to experience strong driver demand supported by the increased earnings. These drivers can generate by renting from hertz versus outright ownership, but.

The longer rental periods typical of this segment mean fewer vehicle turns and meaningfully lower variable costs. This channel also provides us with greater flexibility to pivot our vehicles between rental and ride sharing so as to make better use of our assets.

We are also continuing to see strong progress with our Carvana partnership several thousand cars have been sold through the Carvana platform and we are very pleased with the results providing us with a material uptick the prices found in the wholesale market.

All of these initiatives are expected to be earnings accretive for Hertz.

Looking ahead, we do not see demand for our services lessening anytime soon and in fact, all indications point to an extremely busy summer this coupled with our high operating leverage and attention to the risks of supply chain and cost control gives me confidence that we are well positioned for the next quarter and the balance of the year.

I equally have confidence that we are taking the right steps to position. This business for success in an evolving mobility landscape from the cars, we acquire to the customer experience and the products, we offer to the expanding channels of customers with whom we engage to the increasing efficiency with which we price and manage our fleet to the way in <unk>.

We disposed of our fleet for its now has execution roadmaps and technology plans to elevate its competitive and strategic position.

Now I'll turn it over to Kenny to walk you through our results in more detail.

Thank you Steven and good afternoon, everyone.

We continue to execute on our strategy of focusing on profitable revenue growth sustained discipline with fleet size utilization and productivity.

Our first quarter adjusted EPS was <unk> 87.

And adjusted corporate EBITDA was $614 million of margin as Steven noted a 34%.

Our revenue for the first quarter was $1 8 billion, 57% higher than in 2021.

This was slightly higher than the estimate that I put forward on our last call and masked. The fact that this was really two different periods within the quarter as mentioned earlier.

The first six weeks were weaker than originally expected due to omicron, but march more than compensated for that.

Our performance in the back half of the quarter was due in large measure to improve rates, primarily driven by leisure customer demand.

Our disciplined pricing together with structural improvements we've spoken about previously lesser revenue per unit per month of <unk> hundred $26 up 26% from 2021.

Within Q1, our RP used sequentially increased from approximately a $100 in January to over $600 in March driven by sequential improvements in utilization and pricing.

I should highlight that effective from Q1, we've revised our calculation of monthly revenue per unit or total RP view to use average rental vehicles as the denominator.

Average rental vehicles excludes vehicles for sale on the Companys retail loss or actively being sold through other disposition channels and are therefore unavailable for rent.

We believe this is a better measurement of productivity of our rental fleet as it is unaffected by fluctuations in our disposition activity.

For clarity the.

A calculation of depreciation per unit remains unchanged and includes all cars in the fleet as these remain subject to depreciation.

As I've said before we are keenly focused on generating healthy revenue that is more accretive to the bottom line and we are deliberate about pursuing high quality business.

We've worked hard to permanently improve our business from a go to market standpoint, but market forces on pricing are a function of limit supply and recovering demand.

Depreciation per unit per month for Q1 was the gain of $40 instead of an expense which is within the range. We previously guided at.

As explained in detail on our Q4 call. This is a result of todays strong market for used cars.

As we fleet up for our spring and summer peak seasons, and as we rotate more expensive cars into the fleet. The number of fully depreciated vehicles will decrease as such we continue to expect monthly depreciation per unit increased sequentially through the remainder of 2022 normalizing towards the end.

Of the year for.

For Q2, we expect depreciation per unit per month to be between 110 and $130.

We expect full year monthly <unk> to be between $1 75 and $225.

Our quarterly estimates of depreciation are based on our fleet plan composition vehicle acquisition and disposal amounts and related holding periods.

Present, and future market conditions factor into vehicle cap costs and residual value and therefore also impact depreciation.

These factors are also relevant in assessing our OE in connection with both acquisitions and dispositions of vehicles.

Now moving to cost more broadly.

Like most companies in the U S and as Steven mentioned, we also experienced inflationary pressure during the quarter, which impacted us primarily in three ways first.

Higher vehicle acquisition cost, which increased gross depreciation second.

Higher operating costs, resulting from labor shortages and increased employee compensation and third higher maintenance cost for our vehicles due to increased pricing of parts and service labor.

We see these as being industry Wi factors that needs to be offset by pricing and other initiatives as.

As we mitigate these challenges we will emerge a more operationally efficient organization now.

Notwithstanding these immediate challenges we have several ongoing initiatives that drive additional productivity and operational efficiencies, including hiring at the field level to avoid costly outsourced labor and bringing on more mechanics, and leveraging partnerships with vendors to meet the maintenance needs of the fleet.

We anticipate that cost inflation will further promote industry discipline and ensure optimal allocation of resources across the board.

Overall, the permanent cost improvements, we have made and are making to the business have helped us to mitigate these inflationary pressures as a percentage of revenue and SG&A for the quarter were 800 bps or $145 million better than 2021 and 250 bps.

Or $45 million better than 2019.

In terms of our capital structure and liquidity, our balance sheet remains very healthy positioning us well to fund our strategic initiatives and return value to shareholders via our share repurchase program.

As of March 31, our liquidity was $2 7 billion and is comprised of $1 5 billion of unrestricted cash and nearly $1 2 billion available under the revolving credit facility during.

During the quarter, we increased our rcs capacity by $220 million to nearly one 5 billion, which creates additional financial flexibility and enhances our corporate liquidity.

We also raised approximately two 5%.

<unk> through the issuance of medium term notes as part of our ABS structure. The proceeds were used to repay existing revolving ABS debt, which in turn freed up incremental capacity for future growth.

We also increased the commitments under the variable funding notes by $200 million.

The $3 2 billion.

Turning now to our cash flow for the quarter and our capital deployment strategy more broadly.

There are several possible uses of our cash which needs to be considered together and assessed on a relative basis. They are not mutually exclusive we consider investments in our revenue generating asset base, our fleets and these physicians are based on long term calculations on growth and return on investments.

Capital allocation requires that we are mindful of the balance between five capacity to demand a return on asset in making an investment decision on fleet, we considered the potential for a differentiated return on investment as between Evs and ice vehicles. As an example, whereby the return on Evs may prove higher.

<unk> because of elevated RPT lower operating costs and the possibility of extended depreciable life.

We also considered non fleet capital expenditure, which mainly consist of information technology and infrastructure, all consistent with our strategy of improving customer experience and operational efficiency that Steve spoke to earlier here again, we focus on ROI of these investments in terms of improving fleet deployment and customer experience.

As we have over the past several quarters, we consider the return of cash to shareholders given our net leverage governor of up to one five times and our current cash generating ability. We are in a position where we can invest in growth and return cash to shareholders without placing pressure on the balance sheet.

As of April 21, we purchased approximately 55 million shares under the $2 billion plan with approximately $800 million remaining to spend before we exhaust the current plan, we will be approaching the board where proposals around subsequent plans.

Turning now to some specific cash flow numbers for the quarter. Our adjusted operating cash flow was $677 million or non fleet Capex was $29 million and net fleet Capex was $569 million, resulting in adjusted free cash flow of $79 million this quarter.

As we rotate our older cars and brought in new or high quality pre owned cars. We fund those at about 20% of equity we generated sufficient cash flow to fund our fleet growth and the reduction in liquidity was related to share repurchases.

Let me explain for a moment on how I see cash flow playing out for the full year.

Expect that cash taxes, and working capital will be approximately 10% of EBITDA and that our non fleet capex will be around $250 million to $300 million for the year given the investment in fleet. We are making this year, we expect our net fleet capex to be between one to $1 5 billion depending on market.

<unk> to reflect the equity component of our fleet rejuvenation and growth investments bear in mind. This is mostly funded by the gains realized upon disposals of other vehicles, which are reflected in our reported depreciation and therefore embedded in EBITDA.

We know that people are acutely focused on our view of EBITDA and cash flow once the market normalizes.

As we have told you in the past we continue to believe that at pre pandemic demand levels and industrywide depreciation rates, our normalized annual EBITDA generation will be approximately $1 5 billion.

Excluding initiatives such as the transition towards Evs, the appliance or ride sharing fleet, and our Carvana and Amex GBT relationships.

From that EBITDA baseline, we would normally expect free cash flow conversion of at least 70%. This is because once our aggregate fleet value and depreciation returned to a more normal levels. We expect that EBITDA will adequately reflected the entirety of our fleet expense and net fleet capex will be minimal.

Finally, with a view forward and consistent with what we are seeing across the travel industry. The positive trend. We saw in March is continuing into Q2. We're at month to date <unk> is similar to the strength. We saw in March we generated 20% more EBITDA in March than we had originally expected due to fleet tightness and strong demand.

<unk>.

We do not see any abatement of the limited vehicle supply as Steven mentioned earlier with the current geopolitical environment impacting the supply chain constraints I believe industry fleets will continue to be tight and that pricing and residual values will remain elevated as a result.

Q2 revenue has historically been higher than Q1 by about 20% due to seasonality given the momentum we are seeing in our business. We expect our performance for Q2 to exceed Q1 by 30% to 35% with that let's open the call for Q&A.

Thank you we will now open the line for questions, Ladies and gentlemen, if you would like to ask a question at this time. Please press star one on your telephone keypad.

If your question has been answered any which Jim will soften the queue you may press the pound key.

Also please limit your questions to one question for speaker and one follow up if needed.

Your first question comes from the line of Chris <unk> from Deutsche Bank. Your line is open.

Hey, good afternoon, guys and thanks for taking our questions sure Hey, Chris.

Stephen Yes, Theres been mentioned of the $1 5 billion kind of as a normalized EBITDA range, which I think most people think of as 2023 or beyond as new CEO . What are you what are some of the kind of the opportunities and threats to that to that number yeah sure. So thanks, Chris.

I appreciate the question.

With Kenny and his prepared remarks.

Talked about normalized EBITDA in the context of 19 as a reference point. So let me come at it slightly different angle, which is let's look at current conditions kind of as a delta to where we think normal is so let's look first at the demand side on.

On the demand side, notwithstanding how elevated it is were still shy of where I think normal demand will sit so you look at leisure in the rack business. It's at about 90% of where it was in 19, So limited amount to see there but.

If you look at corporate and you look at inbound. So these are international travelers coming to the United States. There's considerable demand that can be recovered to get us to a normal state of affairs. So thinking about corporate travel corporates now running at about 63% of where it was in 19 and inbounds are running only at about 35% and that will.

Change as Covid measures and the like of entry into the United States will change. So on the demand side. There is still room for improvement to get us to a normalized state.

When you look at the supply side right typically through fleet and I think as we've said.

More limited conditions around supply much as we will get our fair share of it I think persist in through 'twenty, three maybe a bit beyond.

And so there I think as fleet comes on to more normalized levels, you'll see us grow our fleet, but grow it in the context of demand Thats. There so fleet will increase.

We can sustain utilization at levels that we're seeing now in March and into the second quarter.

Let's assume there is some softness in price, it's not going to stay as elevated so if one assumes that we take a 20% or 25% reduction right to what we're looking at on rate and then get to more normalized depreciation.

The fact is that at more modest margins. Okay. We're going to produce one 5 billion the upside to that okay, because as Kenny referred to it. We haven't included is look at both sources of incremental revenue and cost reductions. So we're not thinking about ridesharing and Uber growing or <unk>.

What we can sell through on an increased basis through carvana or collaborative marketing efforts that are out there or for that matter. The benefit we're going to get as more electric vehicles command and the RP you on those are higher than what we're seeing on ice and on the cost side much of what I talked about in the context of certain technology.

<unk> like <unk>.

I have a better pricing engine, we will take our out of service down.

Cloud migration of our overall platform will generate meaningful cost reduction in the context of what we spend on older generation technology.

So those are a bit of the puts and takes I'm, just giving you kind of my own take looking both at supply demand and what increment, we can generate to there and again 2019 is a good gut check but I just wanted to offer you a slightly different perspective.

Then just to simply revert back to 19.

Yes, no. Thanks, Steve very helpful and just as a follow up.

Kind of on the fleet side.

You mentioned that ERP, you a bit of the.

The things you are bringing in which you have a lot of evs coming into the fleet.

Does that make you reconsider wanting to get to the total fleet even back to 19 levels. Even if demand gets there is there is there a case to be made to be smaller with different fleet because of the fleet. The cost of that fleet is going to look a little bit different and so therefore really totally zoned in on <unk>.

<unk> and not on matching the fleet to demand.

Yes.

Yes.

My view on this is that this is managing.

A set of assets, Okay, and sweating the ROA on your fleet. So on less focused on the aggregate amount of fleet.

I'm more focused on making sure that sizing fleet into demand and that the composition of the fleet as between electric vehicle on ice is taken into consideration in part because I think the ROA on the Evs will be higher they will be higher because they attract a higher rate and they carry with them appreciably lower.

Sure.

Operating costs with respect to maintenance and otherwise and I think on.

On the forward Theres more good to be had on depreciation of those vehicles, because I think we're operating with very limited history, but in the end I think the life of those vehicles will be longer and the depreciation less. So my point to you is that I'm not looking to go back to a prescribed fleet number I want to grow fleet in the context of sweating the.

Meeting the demand that's there and looking at the mix of fleet in the context of where I can harvest the greatest margin on the fleet itself.

Okay very helpful. Thanks, guys.

Sure.

Thank you and your next question comes from the line of John Healy from Northcoast Research. Your line is open.

Thank you Big picture question for you Stephen in Canada.

Getting a lot of questions about why we're out of the cycle and what's happening with the economy, which is the love to get your view.

Hertz is thinking about the economy and maybe how it hurts is different.

Relative to historical periods as maybe we encounter some potential economic economic turbulence. So would just love to hear your thoughts on kind of leading economic indicators and how youre planning as Nathan and maybe how that business might be more or less resistant to those pressures.

That come about cyclically.

Hey, John Yes, it's Kenny I'll try to answer this one first so.

Thanks for the question.

A few things come to my mind as I think about your question right the potential downturn economic pressure I'll say two things here first and foremost we can fleet up and down our fleet very very quickly. Unlike other travel and hospitality peers, who can now with the fixed asset.

The name of the game for us regardless of any environment recession, or no recession or pressure is the match fleet to demand right below the demand curve right to maximize profit. The second thing I'd say is we are a very nimble company right, 70% of our cost base is variable and that provides flexibility as volume flexes up and.

Down and remember this is combined with the fact that we have a very.

Strong book of business off airport, which is resilient as proven at the peak of the epidemic.

Good thing.

I'd say is that people talk about inflation right.

My view is we don't view inflation as necessarily a bad thing for us as this creates more discipline across the industry in terms of pricing and asset allocation, which you can see currently the second thing I'd say is that in an inflationary environment car rental is not a bad place to be at Azure utilizing an asset purchased at todays flash history.

Oracle value and monetize them against the backdrop of rising rate environment and the last thing I'd say about inflation is that we continue to drive productivity optimize business processes and drive operational efficiencies to offset that and then the last thing I'd say.

Around the current environment as interest rates right.

As I mentioned in my.

<unk> remarks, we have a really strong balance sheet, but if you think about debt profile right our debt stack, 70% of our total debt is fixed rate. So we are largely insulated from interest rate hikes, and we know we have caps in place as well on the BFM standpoint, So long story short.

While the current environment is dynamic as you pointed out our business model is resilient across a wide range of circumstances and by the way. We are we've been battle tested and we are students of the business, we analyze and study all aspects of the auto market since quite frankly, we participate in all aspects of it. So we're prepared for all scenarios.

John It's Steven the one other perspective ill offer you is that I think rental car the rental car industry and the travel industry more broadly is going to be the beneficiary of what I would describe as a delayed consumptive response, meaning if you look across a range of other industries stimulus led to <unk>.

<unk> consumption.

In the back in the back half of 2021.

If you think about travel travel has not had that opportunity just yet largely by virtue of COVID-19 and restrictions that have been in place if I look at our forward book of bookings in the summer.

What is suggesting to me is that we may see delayed consumptive patterns around travel and we will be the beneficiary of that.

And as I said in response to the question that I was answering for Chris.

Just look at where we've yet to pick up the demand that indicates there is some delay to it so think about whats left on corporate demand come through and impressively. What's left on the inbound international travelers to the U S, which is a very profitable segment for us and so I think there is an element here where stimulus.

Came through we saw that in the consumptive behavior of consumers, but it didn't necessarily materialize in the way in which I think it will in this summer and so that's just a broad perspective to offer you in the context of what the forward curve.

<unk> for the industry.

Great. That's really helpful and just one follow up question Kenny can you run us through the math on the view on fleet costs for the year again was that a U S comment or was that companywide.

Was just hoping to kind of sketch out kind of the.

One five to $2 25 number because it's.

Maybe a number like 300 at the end of the year.

Okay. So yeah. So let me go a bit deeper sense I'm sure I will give you more questions on depreciation so I'll hit it right now so as you think about this quarter right.

Call. It negative 40, if you bifurcate between gross depreciation which is simply you are recorded depreciation of the vehicle and then you gave on sale. If you bifurcate that youre roughly 223 of growth depreciation per car per unit per month, and $2 63 of gains per car per month per unit, that's a negative $40 right.

So as you work your way into call. It Q2 now.

You are fully depreciated vehicles will decrease as I mentioned in the prepared remarks and that essentially if you do the math right.

If Q2 was call. It 100 120 and change then that means youre back half will normalize closer to the $300 Mark.

In terms of depreciation so and then the the number ive given for the full year that is a that is a global number.

Great. Thank you.

Yeah.

Thank you and next we have Stephen Grambling from Goldman Sachs. Your line is open.

Thank you My first question is a big picture question for Stephen.

A lot of different views about what the future of mobility looks like and obviously there are a lot of moving parts, but as you were attracted to this opportunity what was your own framework for what that future looks like over the next call. It three to five years and how are you balancing moving the company towards that view, while also staying nimble if the future goes in a bit of a different direction.

Sure. Thanks, Stephen I appreciate it so.

Ill answer that on a couple of levels.

First of all my view was that.

<unk> sits with an extraordinary brand.

Perhaps a brand that was worthy of an even better business, which I think we can build and that doesn't often happen.

In the context of mobility, there are enough really impressive players that are in and around those changes.

There I think hertz can align itself quite comfortably.

And we're already doing that obviously in the context of Tesla and Uber.

And carvana and alike, and I think theres more to do there.

For me.

The forward path around mobility is all about us thinking now about the way in which we diversified the composition of fleet and equally think about diversification of our customer channels. So in the context of fleet, obviously, it's about combustion engine and electric vehicle and what that will mean and what that.

Carries.

On the customer side. It means not just playing to rack, but also thinking about corporate and equally ride sharing and the forward view on what that might mean for fleet management overall.

In the context of corporate Theres, an interesting developing phenomenon, which is that the electric vehicle is turning out to be.

Have great appeal to our corporate customer they need to rent cars to their employees, but they're equally through EV satisfying their own ESG and carbon footprint objectives, and thats sort of an interesting dynamic there on the Uber side and translate that over through to lift or to a variety of other fleet players.

Imagine where hurts us in a position in this case to take Evs and rent them changing the consistency of product delivery and the economic dynamics to the driver what could we do with other fleets and other fleet management in the context of electric vehicles, there and so there's a forward path right that we can achieve.

I think all of this is meant to be achieved.

For a company that sits on an extraordinary mine of data, we have yet to sort of tap into it and we havent consumed it and analyzed it such that we can find ourselves in a much better position to sort of manage a fleet and serve interests that are ever changing electric fleets corporate customer.

<unk> and the like and so I think the forward here is really quite real.

And our ability to do it in ways that embed existing technology, So think about the mobile phone the <unk>.

Phone can be used in a way to meaningfully improve the customer experience of an individual we can now geo locate cars. We can access the car we can use the phone as the key fob to start the car by the way we can identify you because your identification on the phone will change.

All of that changes the dynamic of what hurts can do with the rental business today with a forward view to mobility. So the younger demographic need not rent a car where herd size or location, we can preposition a car for them in another location. They can access it it can be a seamless proposition and all of that.

Is using existing technology and embedding it in the customer journey. So I think there are many ways that we can tap into the forward mobility prospect and the ability to do that with others is quite real and Thats that was and is an exciting proposition for me and I think holds the promise of.

Realizing consistent and impressive financial returns to the company.

That's helpful and interesting as a follow up on the fleet side of your response is there any sense for how electric vehicle pricing has trended as you've rolled out more and you kind of alluded to this but.

Maybe it's too early to really see this in terms of differences in uptake versus.

I mean consumers versus business customers and then how youre just generally thinking about the pricing umbrella of these vehicles versus the base as they become more ubiquitous.

Sure.

Well I think what we're seeing in.

The early introduction of electric vehicles into the fleet is consistent with what we had analytically modeled in making the decision that the ROA on this segment of the fleet was attractive that is we're seeing elevated pricing.

Certainly interact and equally into ride sharing.

On the ride sharing side it carries the extra benefit of those rentals being longer four weeks. It means our touch point into those cars is appreciably less meaning we won't touch the car 345 times and the way in which we would in the normal fleet. So the operating the operating cost.

Associated with that is much lower the.

The maintenance while it's early the maintenance is lower we expect those maintenance costs to continue to be lower and utilization as an expression of demand in both the corporate.

Segment as well as in ride sharing and rack.

Which suggests to us that the demand is really is really impressive I mean, we're seeing waiting lists among uber drivers to take these cars.

And we're seeing very very quick uptake again at high utilization levels.

Across across the consumer and the corporate side, we have Kevin from a financial standpoint, I'm excited to say about the toughest coming in is validating our long term view of the economics being accretive to ice vehicles. So all.

Our view is having a first mover advantage here is an invaluable here as the learnings are improving our daily operations and giving us a huge competitive advantage.

I would also say one other thing which is.

If one harbors a view that.

There will be forward softness for a variety of reasons right in price.

I think the Evs present as they grow within our fleet.

A pretty defensive floor, if you will as to where that pricing will go meaning we have a first mover advantage.

Our scarce component of the fleet just on a relative basis. Therefore, the ability to hold price I think is higher and so its just an exciting proposition for us as we take more of these vehicles in and look to partner with more Oems on the intake.

Makes sense. Thanks, so much I'll jump back in the queue sure.

Thank you next we have Brian Johnson from Barclays. Your line is open.

Thank you I just wanted to talk a little bit more about the depreciation and particularly around <unk> car sales and pricing outlook, but used car acquisitions as I'm sure you're probably aware there are some.

While down used car resellers, who were seen by the market in their most recent earnings results are buying used cars earlier in the year and late last year at one price and then selling them at another so two questions one.

Can you give us some sense.

How your activity in the used car acquisition market was.

That factors into your depreciation outlook and then number two it's comforting that you're guiding to about 110 next quarter.

The 500 number very similar to what's in our model and other analysts reference we do have.

Depreciation is normalizing as part of that but how do investors get some comfort that as used car prices moderate slightly there isn't an overshoot and your depreciation numbers.

So why don't I, let Kenny start and then we'll come back.

I think I think one of the questions I think you're alluding to you Brian is that how do we think about a normalized depreciation rate going forward as you know right now the back half the exit rate closer to $300 as I alluded to earlier.

Here's how I think about it right when you look at depreciation.

Unfair to look at it in silo right you have to look at it in conjunction with other dynamics are PD.

Digital's cap cost just name a few right. So let me give you a quick stat.

Not a coincident that RTD residual cap cost right now at this very moment is all off by a 3% to 40% versus pre pandemic right. So simple math is if GPU right use. An example, one of the $500 you may say Wow, that's really high but RPE followed the 2000 I think that economics, all day and all night.

Alright, So I think it's important to really look at depreciation.

In conjunction with other variables and that goes back to the point about return on assets that that that Stephen mentioned, alright, So I don't think of anything else Adam.

I think I think I think the point that Kenny is making is the right one which is obviously we need to be mindful of depreciation and think about it in the context of how we manage the fleet and I'll come back to that but I think when Kenny and I manage the business we're looking at.

Dashboard that has multiple indicators on it okay. We're looking at the rate we're charging we're looking at utilization, we're looking at depreciation and you need to take those all in tandem now.

Mike.

Adherence to sort of as a good framework is we want to sweat the asset and therefore all of these are inputs to the return that the fleet is ultimately going to yield.

<unk>.

Now in the context of our own behavior and the used car market. We are at the moment, both a buyer and a seller. Okay. So we are buying low mileage high quality used cars because the returns are attractive in a market that's displaying the kind of demand relative to supply that it is at.

At the same time, we are looking at selling.

Portions of our of our of our fleet because they are high Molly.

High mileage cars, there are deteriorating value, it's not a product that we want to put a customer in and when we do the math and we do the analytics part.

Harvesting at the current elevated a residual level or car price on that through carvana or any other channel is in excess of the present value of the rental revenue that were otherwise going to take in that's the kind of dynamic we need to go through as both a buyer and a seller.

And so I think that answers your question, but that's how we're thinking about this more broadly.

Okay. So youre not worried that you bought basically what youre, saying is used car acquisitions are a alternative in a tight market to new car acquisition.

Followed depreciation curve and obviously, you're renting them in the meantime, I think thats right and I think that equally I'm not I'm not standing in a static position, meaning if we start to see the market move okay. So.

Something happens and the relationship if you will between new car prices and where we're taking an expensive vehicles and what we're doing with respect to the residual on the use my view is that it's unlikely to move at a beta of one and equally it's not going to move on an overnight basis and so because we study. This all the time we're going.

To act right on where those numbers sit so the calculus that we do about the or keep the car or do you sell the car is in the context of a spot price relative to where we can earn rental money on the property itself. So we're going to be quick on this should these dynamics change, but again I think.

ROA is the broader context within which to think of it.

Okay. Thank you sure.

Thank you and our next question comes from the line of Ian Zaffino from Oppenheimer. Your line is open.

Great. Thank you very much.

As far as.

I know you guys mentioned carvana, saying, you've got an uptick is there any more color you can maybe give.

Give us surrounding that maybe how much was the uptick or.

Do you expect to see continued upticks and how many vehicles do you think you can actually.

Move through that channel, how do we think about that.

Sure well I think we need to stay away from the specifics of the arrangement for a host of different competitive reasons, but let me shed a little bit of light on it what we're seeing in carvana.

Is a material uptick to what we could harvest in the wholesale market Carvana. Therefore provides us with an incremental channel.

Alongside the Hertz used car retail channel that we have.

To sort of provide us with really interesting economics on the sale of the used car fleet I'd also point out, particularly relevant to the last question in the last exchange.

Anytime you have value itself of an incremental channel to move used cars. You. Therefore provide yourself with added flexibility to be quick and agile as and to the extent that there is changing circumstances in the market or pricing, but we are seeing through carvana.

Is perhaps more elevated in terms of volumes than what we had initially imagined and it's a good robust.

Panel for Us that's suiting us in the context of <unk>.

Material materially elevated prices relative to what the wholesale market provides.

This is Kenny just to kind of Dimensionalize potential how you think about volume right in a normal year you usually we sold one third of our vehicles through our retail channel and two thirds through the wholesale auction channel Carvana is not cannibalizing the retail side of the house, which is the highest margin for us right from a disposition standpoint, it's really taken away from the <unk>.

Our auction sites, so again, it's accretive for our business and our margins.

Okay, Great and then as a follow up question.

I know, we had a nice discussion about ROA and investment in the business with a fleet, but I know you still have.

About $800 million left on your buyback but.

Based on kind of like your leverage ratios that you are talking about you can take on incremental leverage.

To just to reach your target and with that excess cash of capacity.

Where do buybacks fit in that.

And again I know you have some left on there but.

Are they mutually exclusive.

Are we exactly think about that going forward.

Sure. So let me just say the following first in the context of what we were doing in the first quarter we were in.

Elongated blackout and therefore, what we were doing by way of volume was a prescribed volume.

Obviously, the opportunity for us to recalibrate the volume.

And reevaluate the volume of shares that will repurchase happens now occasions by the fact that we're having this earnings call and the earnings release, and therefore, we are free to sort of recalibrate. The volume that we want to do and we will do that.

My view is we will exhaust the existing program and we will roll into a new program as we pick up just the aggregate amount with.

Among the management team and the board so.

That's just the mechanics of it.

As a philosophical matter I.

I think repurchase stands alongside what Kenny had articulated which is we have opportunity to invest in fleet, we have opportunity to invest in the business to render it more operationally efficient and we have the opportunity, particularly in this market to look at share repurchase and all three are always on the table.

In the context of yielding attractive returns and so that's the philosophy will continue to take I think given the largest of the market in which we're in we can do all three we will do all three and I think we will take up the pace of that repurchase now that we have earnings behind us.

And your math is right. We're one turn away from our government our governor numbers. So this shows you that we have a lot of optionality and flexibility when it comes to capital allocation.

This is Ross at Comcast.

No problem.

Thank you and other last question I will turn the call over back to RSV, Alice Stephen Scherr for closing remarks, Sir.

Okay. So I want to thank you all for participating today I hope that today's call provided you with a better sense of the progress we've made the dynamics, we're seeing in the industry and the market in a better appreciation for the improved financial condition and prospects for the company I look forward to sharing further updates with you on our next call in and obviously meeting and visiting with many.

Have you now sitting in my new seat so with that we.

Thank you again for joining us.

Thank you presenters. This concludes the Hertz global Holdings' first quarter tiny tiny do our next conference call. Thank you for your participation and good afternoon.