Q2 2022 Hertz Global Holdings Inc Earnings Call

Yeah.

Welcome to the Hertz Global Holdings second 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 morning'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 morning, everyone and thank you for joining us by now you should have our earnings press release and associated financial information. We've also provided slides to accompany our conference call, which can be accessed on our website.

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

Forward looking statements are not a guarantee 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 <unk>.

Company undertakes no obligation to update that information.

Blake changed circumstances.

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 second quarter 2022 Form 10-Q filed with the ACC.

All of these documents are available on the Investor Relations section of the Hertz website.

Today, we'll use certain non-GAAP financial measures, which are reconciled with GAAP numbers in our earnings press release, we believe that our profitability and performance is better demonstrated using these non-GAAP measures.

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

I'll now turn the call over to Steven.

Thank you Johan and good morning, and welcome to our second quarter earnings call. Our financial results for the second quarter were strong reflecting the continued strength of our underlying business positive market forces and high demand for our services.

Revenue was $2 $3 billion up 25% year over year, and up 30% quarter over quarter and adjusted corporate EBITDA was a second quarter record of $764 million.

Adjusted free cash flow in the quarter was $484 million with the company demonstrating increased free cash flow conversion from the first quarter.

In the quarter, our performance facilitated continued investment in fleet and non fleet capex as well as the repurchase of $890 million of stock through open market purchases completing our initial $2 billion authorization. We also initiated purchases under our new $2 billion board authorization, which.

We announced on June 15th of this year.

Overall, I am very pleased with our performance and the momentum of the business coming out of the second quarter with strong results across the U S, Canada, Europe and APAC.

Demand for our services remains elevated as each of leisure corporate and ride sharing continue to demonstrate improvement.

Getting into the specifics of the quarter, our operational performance was strong overall and importantly showed sequential month to month improvement as the team capitalized on the heightened pace of the summer travel season.

We achieved fleet utilization of just under 80% in the quarter five points higher than in the first quarter with June representing the highest utilization month for the year, thus far and over 80% similar.

Similarly, our monthly revenue per unit at a June record of $1667 for the quarter ARPA was $1606 on RPT of $67. Both metrics were up over last year I would point out that we achieved these results despite elevated auto ru.

Call activity in the quarter, which we estimate depressed our utilization by one percentage point and negatively impacted revenue by $15 million to $20 million.

Looking ahead, we are seeing the momentum built over the course of the second quarter carrying through to the busy summer season of late July into August .

With respect to EBITDA and free cash flow generation each represents a second quarter record for the company and were impressive notwithstanding upward inflationary pressure on expenses, particularly labor costs. Although much of these inflationary costs are being passed through in elevated our PD. We nonetheless continue to do.

<unk> expense discipline, including a reduction in our reliance on more expensive third party labor sources.

All of these operational improvements, which are delivering clear results for our shareholders are rooted in our enhanced focus on driving an ROI mentality and all that we do.

The cornerstone of this approach is how we view and manage our fleet our second quarter results reflect our ability to run higher utilization, while protecting rate put simply we are generating more EBITDA and more cash flow with fewer cars.

On an ongoing basis. This row mindset means that our fleet decisions are dynamic and are guided by changing economic circumstances and customer demand by sweating. Our assets, we are making careful decisions regarding additions to the fleet and equally prudent decisions about the volume in manner by which we dispose of vehicles and we.

We'll continue to do so.

Running the fleet tight and inside expected demand curves has and we expect will continue to produce higher free cash flow on the back of lower net fleet Capex.

This was on display in the second quarter as demand for travel across airlines hotels and rental cars remained strong and as I noted, we expect the balance of the summer to continue to carry sustained demand for our services with strong pricing, resulting from ongoing supply demand dynamics.

Our strong performance in June carried forward into July we are not seeing a pullback in forward demand as reservations for August and September are currently in line with seasonal expectations in all we remain confident in the fundamentals of our business.

That said like all consumer businesses, we are attuned to external indicators of future economic activity, particularly when they don't comport with what we're currently seeing in our business. Our business offers us immense flexibility to quickly adjust to changing demand. The used car market is liquid and provides.

US with a valuable option to buy and sell cars to meet marginal demand on short notice.

This complements our strong OEM relationships, which ensure a steady baseline supply of new cars, which keep the fleet current and young. It is also a distinguishing characteristic of the rental car business as our assets can be bought and sold quickly. They can be moved to deeper pockets of demand and manage great flexibility.

To maximize returns.

Beginning in the second quarter, we challenged ourselves as to the level of fleet, we would target for the balance of the year taken stock of high current residual pricing on used cars and questions about more modest demand late in the year with a possibility of more seasonal demand patterns in Q3, and Q4, rather than outsized growth.

With that we experienced coming out of Covid, we are availing ourselves of the option to buy and sell cars quickly that is unique to our business rather than preemptively remain at elevated fleet levels, we are choosing to safeguard rate and optimize utilization so as to generate higher EBITDA and cash flow. The result is that.

By fiscal year end, our fleet size will approximate where we opened in 2022.

If elevated demand were to persist we will flex the fleet quickly and responsibly as the spot market for low mileage. Good condition used cars remains available to us.

This approach also carries the ancillary benefit of reducing the average fleet age, which has already been lowered by two five months year to date as well as freeing up maintenance capacity to address out of service vehicles.

Put numbers to all of this you will recall that on our last earnings call. We provided a range of net fleet capex of one to one $5 billion.

That number now to be between $750 million and $1 billion.

All of that said for the balance of the third quarter, we expect to continue to benefit from a market that is supportive of our business continued high <unk> on the back of high utilization and elevated rate.

As others have noted travel trends relating to the recovery from Covid are prevailing over the risks of an economic downturn until that equation changes, we will continue to benefit from the former and we'll be ready for the ladder.

Let me now turn to progress on certain business and operational initiatives that are growing contributors to revenue growth and cost containment.

On the P&C side, Uber and Lyft driver demand for both EV and ice vehicles remained strong in the quarter and we have nearly doubled our TNC fleet size year over year with respect to EV, specifically over 15000 Uber drivers to date have rented at Tesla from Hertz at a minimum rate of $334.

Per week, comprising over half a million transaction days driver feedback has been positive and they remain drawn to the opportunity as gasoline prices remain elevated and demand for the service among Uber customers is strong.

Our Tesla has enabled uber drivers to differentiate themselves and to improve upon the quality of their riders experience and that translates into higher earnings for them. We're also excited that on the back of our recent success. We have now expanded our Tesla Uber partnership into Canada.

With respect to electric vehicles in our airport and off Airport fleet. We've recorded over 160000 transaction days using Tesla cars booked at premium rates that are typically 30 to $35 in excess of comparable average rates.

Customers are enjoying the Tesla <unk> experience, which is being expressed in NPS scores that are 10 points higher than our global average we are continuing to expand the electric vehicle offering through the regular delivery of Tesla cars and now Paul stars. We're also negotiating with other Oems to purchase electric vehicles.

At attractive price points, what's more as we accumulate additional data on the Tesla fleet, we expect to see higher residual values than originally anticipated.

On the corporate side of our rental business, we continue to work with Amex GBT to enhance our share across its customer portfolio. For example, as corporate travel has been rebounding June generated more than two times. The revenue we recorded from Amex GBT in January and we expect this momentum to continue.

In addition, we expect to leverage IMAX Gbt's acquisition of Egencia, our corporate travel management firm to accelerate our capture of the profitable mid market travel segment. Overall, we anticipate the corporate segment to grow, particularly as more companies return to travel.

With regard to the disposition of vehicles, we have sold thousands of vehicles on the Carvana platform. During the first half of the year and we expect further growth from here. This disposition channel remains active provides us with granular market intelligence on pricing dynamics away from more conventional embassies and perhaps most importantly.

Offers us a material premium to prices, we would otherwise realize through wholesale channels our.

Our ambition is to increase the use of Carvana and similar channels as our systems around fleet pricing and management continue to mature.

I also want to speak about technology, which is obviously a significant area of non fleet investment for US as an example of technology investments benefiting financial performance, we are making progress with telematics in the Americas over 285000 of our cars are now connected that is around 75%.

The fleet, we are on track to have nearly all of the Americas fleet connected by year end <unk>.

Telematics or promoting higher fleet uptime, reducing theft, and bad debt, improving damage monitoring and providing from a more accurate fuel measurements.

Example, repossession recovery times are reduced by 50% on connected vehicles at an <unk> of more than $600 per month that time savings matters as we mature the program. We will add more features to leverage telematics data to improve our inventory management and planning practices.

Lastly, regarding technology broadly and our migration to the cloud as I have said before this is foundational to the company as we progress our move to the cloud over the next 18 to 24 months, we will operate more efficiently and realized very tangible cost reduction as it relates to expenses associated with our legacy platform.

<unk> and physical data centers.

Operating with SaaS providers like Oracle as an example in running our business in a safer and more cost effective cloud environment will reduce operating expenses and lower our reliance on third party consultancy.

Together, we estimate all of these business and business and operational initiatives in their mature state both on the revenue and cost side can contribute in excess of $500 million of incremental EBITDA not now reflected in the business.

As I turn the call to Kenny I'll close by saying that I am increasingly confident in our ability to execute on our core business plan and excited by our strategic initiatives, which position Hertz for success in an evolving mobility ecosystem as.

As we worked through an extremely busy summer season, I would also like to recognize members of the Hertz team for their tireless efforts and especially acknowledge the teams in the field as they look after customers and produce increasing net promoter scores and positive financial results now.

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

Thank you Steven and good morning, everyone.

Steven mentioned, we had a very strong second quarter and our continued focus on asset yield paid off our adjusted EPS was $1 22, and adjusted corporate EBITDA was a second quarter record of $764 million, reflecting a margin of 33%.

Revenue was $3 3 billion up 25% from 'twenty to 'twenty, one and up 30% sequentially well above the historical seasonal uptick of 20%.

While also re cost burden utilization in the quarter. We also experienced a modestly negative foreign currency impact mainly from the euro conversion to dollar impacting our revenue by about $20 million, a roughly 1% quarter over quarter.

Notwithstanding our results reflected our operational focus and price discipline.

Monthly <unk> was about $1600 for the quarter in line with March as we exited Q1, we.

We experienced an almost 20% increase in volume compared to last year, driven by continued strong demand and leisure rentals.

International inbound customer demand have yet to fully return to pre COVID-19 levels, but have shown improvement.

International inbound travel for example, only began to benefit from relaxation of U S. Covid testing requirements and mass mandates late in the second quarter. However, we did see the volume gas began to close during the quarter.

Corporate volume was at 70% of 2019 levels in Q2 with international inbound at about 40% both modestly up versus Q1.

Depreciation per unit per month for Q2 was $71, which was lower than the average we estimated on our last call.

This lower than anticipated depreciation was largely driven by fewer cars purchased in the quarter as we maintained tighter fleet management and higher than anticipated residual values, including on evs as well as higher than expected gains in the quarter, producing an offset to the gross depreciation line.

Let me stay a residual value of used cars for a moment.

In the quarter, we witnessed continuous strength and the residual value of our fleet exceeding our previous expectations as the market for used cars remain strong.

This provided an exceptional opportunity to monetize older fully depreciated cars and.

In addition, the shift of several thousand car sales from the wholesale market for the Carvana channel enhance our selling price by approximately 5% and optimize inventory turns.

As a result of these efforts is reflected in our strong free cash flow as well and the ABS equity cushion, which was about $2 5 billion on June 30. This level. Despite our harvesting of gains by vehicle sales was approximately unchanged from March 31, due to a strong residual values.

Accelerated ABS depreciation rates and deliberate fleet purchase decisions.

While residual values remained higher than we expected in Q2, we have experienced some modest reduction in the first weeks of Q3 as.

As we indicated last quarter, we would expect values to soften that debt from here, but our balance sheet and ABS structures remain exceptionally well positioned and we will continue to prioritize car sales to optimize channels as readjust fleet.

As Steven mentioned, we now believe net fleet capex for the year will be between $750 million and $1 billion.

This change will have a dollar for dollar impact on free cash flow.

Also we believe our fleet rejuvenation efforts, including a rotation from older to newer vehicles will result in Q3 monthly <unk> of 145 to $165 and full year monthly GPU of 75 to $175.

These estimates are lower than the numbers, we provided to you in April at reflect stronger than expected residual values, which have contributed to a higher than expected gain on sale as well as fewer expected additions to the fleet.

Turning to expenses, which remain an area of intense focus for us.

In terms of operating costs, which are largely variable we incurred $1 2 billion in Q2.

Although this represents a 24% increase versus Q2 of last year that increase is to be understood in the context of a 27% increase in transactional activity over the same period, reflecting a modest operating leverage in the business.

As for the primary drivers of the year on year increase we experienced higher cost and transportation and fuel, reflecting the effect of broader inflationary trends as well as and maintenance on order fleet.

We expect maintenance expense to moderate as our fleet continues to grow younger.

On the forward, we anticipate additional operating leverage as more expensive third party labor strategically replace with Hertz employees and we further reduced maintenance expense as we rejuvenate the fleet and continue to grow our number of Evs.

In terms of SG&A, we incurred expense in Q2 of $257 million representing.

Representing a return to a more normalized level of marketing spend as well as higher profit sharing and share based compensation relative for our post emergent activity last year.

These three categories comprise the entirety of the year over year increase.

Let me now turn to our capital structure and liquidity.

Our balance sheet remains very strong and we ended the quarter with a leverage of <unk> six times.

At June 30, our liquidity was $2 5 billion comprised.

Comprised of $1 billion in unrestricted cash and $1 5 billion available under the revolving credit facility.

During the quarter, we increased our rcs capacity by $415 million to $1 9 billion.

Creating additional financial flexibility and enhancing our corporate liquidity.

We also increased the commitments under our variable funding notes by $843 million to over $3 8 billion.

We allocated nearly $1 billion towards capital investments and share repurchases during the quarter and still maintain liquidity that's broadly in line with the previous quarter.

Turning now to cash flow and capital allocation for the quarter.

Adjusted operating cash flow was $585 million for Q2, approximately an 80% conversion from EBITDA, our non fleet Capex was $24 million for the quarter and our net fleet Capex was $77 million, reflecting our disciplined pace of fleet growth, our adjusted free cash flow.

In the quarter was a strong $484 million.

During the quarter, we repurchased nearly 47 million shares completing the initial $2 billion program announced in November 2010.

One as you know we announced the authorization of a new $2 billion program on June 15th and through July 20, <unk>, we repurchased approximately 9 million shares with $1 $8 billion remaining under the new plan.

We believe that our strong balance sheet and improve operational position will continue to permit the company generates sufficient cash to meet our capital priorities, which are investing in our fleet funding, our strategic initiatives and returning excess cash to shareholders.

Finally in terms of tone of our business as I noted earlier, we saw a relaxation of testing in mass requirements for travelers to the U S. Late in Q2, which has produced a tailwind for international inbound demand.

We're now starting to see elevated inbound activity in Europe from the U S and vice versa.

We're also experiencing strength in Canada, as we have emphasized our off airport business and strength in certain parts of APAC business as the economies have opened.

In terms of what current activity means for for performance.

Reiterate what Steve said earlier.

As we sit here today, we continue to see strong demand for our services in fact over the last few weeks, we've had days that hip post pandemic of records for vehicles on rent and each of the U S, Canada and Europe .

July is proving to be a very strong month for us even stronger on RPT than June .

Looking out over the third quarter I will point out that Q3 is typically a seasonally stronger quarter than Q2 with July the strongest month of the three.

We currently expect that seasonality to persist with Q3 benefiting from the elevated level of <unk> in Q2 carrying forward and a seasonal increase in volume consistent with historical patterns relative to Q2.

Finally, as an observation on the industry, we do not see any near term material relief from limited new car supply and therefore, we believe our fleet will continue to be tight like that of the industry generally and as a result that pricing and residual values will remain strong.

That let's open the call for Q&A.

Thank you Sir.

We'll now open the lines for questions. Please limit your questions to one question per speaker and one follow up if needed.

Ask a question.

Please slowly press star one on your telephone.

Please standby, while we compile the Q&A roster.

Okay.

Our first question comes from the line of Chris <unk> from Deutsche Bank. Please go ahead.

Yeah, Hey, good morning, guys.

Steven can you maybe talk a little bit more about the.

Modifications you made to the fleet plan to reduce the Capex estimates so substantially just maybe a little more detail there and the thought process that went into that sure sure. Thanks, a lot Chris so.

As I said in the prepared remarks.

We are going to carry a fleet at year end debt will approximate where we began the year, which was sort of approaching half a million cars, obviously that'll be down from our current peak as we carry fleet right now to sort of meet the summer surge of demand.

And so over the course of this year I think it's to be expected that we will kind of buy and sell roughly 300000 cars aside and if you look at what we buy it all sort of trend two to one new cars.

<unk> to new or used or good condition used cars.

And so.

That in and of itself I would say is a bit of a departure in philosophy from where we've been in the past meaning in the past. This company had kind of locked in on a fleet number at the beginning of the year and sort of held added and stayed long on fleet, notwithstanding where demand.

Or.

<unk> sort of was expressed and so we relied exclusively on that I think we were ignoring a valuable option, which is we do have an option to go into the used car market both to sell and buy cars to meet marginal demand.

So make no mistake, we're going to be fundamental buyers of new cars as we rejuvenate the fleet, but the swing factor here is is really going to be expressed in the up and down in what we do in the used car market and so we have questions about what demand will look like in the back half you had continued strong demand here.

Our view is that we ought to run on a shortened up alongside of fleet and where demand materializes higher than seasonal expectations. So higher in the third quarter.

Then we will in fleet and we can do that kind of within a 30 day window, where we can go out just as we did this summer and by good quality used cars to sort of meet demand thats. There I think that puts us in a much better place now we're not forecasting a falloff in demand again, we're expecting seasonal growth we're just.

Managing our fleet.

To a level that is not sized upfront to sort of post COVID-19.

Excessive growth forecasts that were there will run short into fleet again inside the demand curve and look to the unique option. We have the rental car business hurts included.

Carries this unique option relative to other industries in the travel space, meaning the airlines cannot sort of move that quickly right to sort of generate supply to meet demand higher or lower hotels can't move hotel rooms around that can get in and out of rooms sort of quickly, but we can and we can avail ourselves of this unit.

Option to play in the used car market. We did it this summer and we can do at the back half of the year again, depending upon where demand expresses the whole point of this sort of shift in strategy is that I think we can sell cars now at elevated prices, given where residuals are we're more likely to be buyers of.

Those cars later at lower prices.

And all the while we will present with a lower net fleet Capex, we can preserve rate preserve higher utilization and maintain EBITDA and elevated free cash flow and I think that's sort of a good solid prudent strategy for us to to follow in the context of how to manage fleet against an uncertain forward.

Yeah. Thanks, Thanks, Steven very very helpful. And then a follow up if I could kind of related to that.

Yes, that's where we see the fleet plan and we know that demand overall is very strong you have given us a lot of detail on what youre doing with evs in the.

<unk> and such is there any shift in kind of strategic direction in terms of business you're pursuing you talked about Amex I guess the question is are you over time I think to do less I guess hand to hand combat at some of the airports where at some point pricing can maybe maybe normalize does that is that a strategic shift or.

Or not.

Well I would not read any of this as you know.

In any way kind of an abandonment of the classic business that you see on our off airport locations. The way I would characterize what we're doing is twofold. One I think there is inherent benefit in drawing out multiple channels of customers and not relying on kind of the rack business as a mono.

What that means is we need to play hard not just for the conventional <unk> business and leisure travel. We also need to play hard for deeper penetration of corporate travel.

And the TNC business is meaningful incremental demand potential that to this point had not been realized. So this is about pursuing diversified channels of demand than it is about an abandonment or withdraw from any one particular channel.

I would also say to you that the ability to pursue multiple demand channels.

Is predicated on carrying a more diversified fleet because the interest at each of those customer channels have maybe differentiated one to the next so for example.

Having electric vehicles is a growing component of the fleet in its overall composition is playing well in the corporate sector and playing well in TNC.

<unk> want to satisfy their own sort of carbon footprint objectives, so they're compelling employees to get into electric vehicles. Therefore, this incremental demand <unk>.

PNC, given where gas prices are and the quality of what a hertz car means to the earnings power of an Uber driver wants to sort of place their drivers into electric vehicles. So it's a combination of multiple channels of demand.

Using different composition of fleet right to sort of give ourselves a greater ability to capture pockets of demand and have the agility to move fleet around.

In and throughout those channels.

Thank you sure.

And I show. Our next question comes from the line of Anne Zaffino from Oppenheimer. Please go ahead.

Okay, great. Thank you very much.

Great great quarter guys.

Thank you.

Hey, Kevin.

Cost pressures you are seeing here from inflation.

Maybe talk about general levers you have at your disposal.

To manage those and to address those costs and then.

I'll also share count if you have that quarter.

Quarter end thanks.

Hey, Ian Hey, Thanks for the question so yes.

Let me remind you that.

About 70% of our cost is variable right. These expenses, while justice fleet size changes as Steven mentioned this is a unique feature of the car rental industry as we can fleet up and down pretty quickly right.

In terms of managing cost right. We are obsessed with operating leverage it is something we think about each and every day and we have multiple levers that we can pull let.

Let me give you some tangible examples right on the labor front as I mentioned, we are replacing expensive third party labor with Hertz battered ftes and that arbitrage would be flowing through the P&L going forward on the maintenance side. In addition to increasing mechanics to repair vehicles in house. We are currently working.

<unk> be hard to rejuvenate our fleet.

And that will improve maintenance expense overtime and personally I am extremely excited about getting more evs. This year right. The economics proven to be extremely accretive to our business and that would also improve maintenance expense as well out of service. We're working extremely hard on out of service and this will drive a few things in <unk>.

<unk> fleet utilization and drive more revenue, which ultimately drive scale and leverage.

As a percent of revenue expenses will go down Stephen talked about tech place right telematics and thats going to be huge for us as well right now we're about 75% tagged up and by the end of the year will be 100% and that will really help on a few fold theft bad debt damage recovery service efficiencies.

And fuel recovery as well now we're also working very hard on technology plays and we expect to see long term benefits from that as you think about on premise to cloud conversion as well as legacy system refresh. So long story short. This is a key area of focus for us and will continue to be for the management team as we can match both fleet.

And expenses too to demand.

Okay. Thank you.

And then if I could just.

As a follow up.

On <unk>, you talked about that a lot now.

Now that we're kind of through a couple of months quarters.

Can you maybe tell us how large maybe that channel can become for you.

Maybe like the realized premium that youre seeing or that we should expect just only to conceptualize.

The value of that agreement sure.

And then also just ending quarter share count thanks, Yes.

So I'll.

I'll leave Kenny to give you the quarter and share count but on Carvana.

We are realizing something in the neighborhood of about a 5% premium to what we otherwise sell cars in the wholesale market and this is obviously very attractive and the view is that we can and will continue to grow this.

This should number in the tens of thousands of cars in terms of what we can push through.

So that could that could present, a meaningful and consequential 10% of total sales in a year just as I said as I mentioned earlier, we will sell 300000 cars this year and as Carvana matures, it's not quite there yet we will grow that to be consequential.

<unk> presented a percentage of whats sold I will also say to you that I think the relationship with Carvana will also present as I mentioned in the remarks kind of an interesting view as to kind of where car sales and car prices are moving that kind of intelligence will be important as we think about managing the fleet and just the sheer volume of.

Cars that will look to sell but I think carvana holds enormous promise, 5% above or they are about what we get in the wholesale market and tens of thousands of cars at the mature state to sort of pushed through the channel itself.

Yes, and you have to kind of just to give you a perspective on Carvana and then I'll answer the share count question. If you think about a normal year, we sell call. It 300000 cars, one thirds retail two thirds wholesale so theres, a big opportunity there converting wholesale to carvana.

Share count at the end of the period was $368 million.

Thank you.

And I show. Our next question comes from the line of Adam Jonas from Morgan Stanley . Please go ahead.

Hi, Steve Hi, Kenny.

Adam definitely very very smart to err on the side of caution with the the fleet size, that's really really good to hear I'm almost pinching myself I can't believe I'm hearing us.

From what Youre hearing what Youre hearing, it's actually happening I don't believe it.

A little more detail on the Evs, how many <unk> do you have in your U S fleet right now.

Where are they.

Mine I, just rapid fire how many.

So we're at about I think 20000 cars now kind of active in the fleet and obviously deliveries ongoing.

Okay, and what can you tell us about any SaaS you mentioned that premium.

30 to $35 premium that's great, but anything else on on DNA per unit don't know, if you're able to share that right now if you have enough information.

Well opex or anything else on profitability of that line because I think there are some.

There are some issues with logistical challenges and things, which are part of the early EV fleet, right, which you, which you've talked about in the past I'm just curious when you blend it altogether house is that a positive.

EBITDA shift for you or margin shift for you or is it.

The answer is unequivocally, yes in fact last week, we did kind of a re underwrite on the EV fleet, how it's playing how it's presenting relative to what we thought it would do on the initial decision to go in so I'd say a couple of things first of all.

We continue to take delivery of Teslas, and we will continue to do that number one number two I think you should expect in the coming months that you will see announcements from us about purchase.

Electric vehicles and sizeable quantity from other Oems as we try to sort of build out kind of a broad population of vehicles across a range of Oems and we will see those at very attractive kind of price entry points.

Third we are capturing I think as I said in the remarks kind of a 30% to $35 premium.

That premium has been fairly sustainable and in the TNC channel. We're renting these for about $334 $5.

We have found kind of just the right price point, where given all sorts of externalities around economics for an Uber driver.

They want to and are excited about renting that and they can turn a profit there.

That means for us by the way, particularly in the TNC side is fewer touch points on the car over a course of a month, maybe by as many as five to seven times that reduces cost considerably where obviously passing some of that on because the weekly rental is lower for the TNC driver then.

Then the per diem or per day rental out to the normal rack.

On on maintenance I think Kenny said to you we are running.

Kind of 50% to 60% of what maintenance costs are on ice vehicles, that's roughly in line with where we are if there is any one surprise, it's probably slightly higher expense on tires.

But not much more than that is embedded in the figure I am giving you. So I would say overall, we're very pleased with the results. They are coming in roughly in line with what we thought when we first underwrote to move in this strategic direction. Two other things I would say to you is number one I think depreciation on these cars will be better.

Than what had been modeled.

For a variety of reasons.

And secondly, I think that on the logistics that you spoke about this is we're first mover matters.

First we took from Tesla relative to the most recent loss. We took have moved materially faster we've learned how to move those cars, where we want those cars to be.

And equally I think we have schooled our customers on how to use them. So.

So much so that I think there is there is an embedded tether there which is people have learned how to use the car theyre coming back to use the car and rent car more frequently and I think all of those are expressions of the first mover edge that we have around evs.

Yeah, just to add on that on depreciation we originally pegged depreciation rate to an ice vehicle as Stephen mentioned right now based on early innings in data, we are seeing that depreciation rate on the evs being lower than ice vehicles. So as we underwrite that.

Business case with new data, we are even more confident with the economics of Evs.

Okay.

That's really really valuable data if I could just squeeze in one more of the 20000, how many of those are in TNC versus non P&C. That's it. Thanks, I think I think it's a pretty fluid number I mean the idea here.

Is that they're not locked in right I want the flexibility to be able to move cars as between P&C and non TNC and so it's pretty fluid some of the facts and figures. We gave you in the prepared remarks, just just indicate the sheer magnitude of demand that's being expressed by TNC, but thats going to be a fluid.

Number by design.

Thank you.

And our next question comes from the line of Ryan Brinkman from Jpmorgan. Please go ahead hi.

Hi, Thanks for taking my questions I heard you say that demand has remained strong and <unk> is reflected in bookings in August et cetera, what insights can you share about the.

The trend in pricing so far either in July or maybe what you can glean based upon the bookings for August etcetera.

So I would say on pricing remember the move from Q1 to Q2 showed pricing up I want to say about 12%, which was well above what seasonal movement Q1 to Q2 would have been on.

On the back of where we sit at elevated prices I don't know that Theres a lot of room for pricing to go up as it traditionally would have right between Q2 and Q3. So in my own mind I think we'll stay at a relatively static price in through Q3, and really what we'll see in the third quarter will be an expression.

Of seasonal demand uptick some more days.

And Thats historically been in the 7% to 8% range in terms of Q2 to Q3 and I think that's what we'll see we're in a very very elevated sort of price level I think its sustainable I don't foresee as Kenny said.

An influx of new supply from the Oems and so holding fleet tight protecting rate will sort of see that stay stable and we will see pick up Q2 to Q3 more in the expression of days in volume than in rate, yes. The only thing I'd add is on pricing Stephens rate Q2 to Q3, it's going to be a bit more flat.

Just given that we're at.

It is right now, but <unk> based on early reads are higher right. So we are more effective and efficient with the use of our fleet.

Okay very helpful. Thanks, and what impact do you think there will be going forward on RPT from like the different cross currents in mix. So for example, like as international inbound continues to recover maybe as Tesla increases as a percent of total on the leisure side.

That should provide a nice tailwind, but how does that compare against for example, a higher mix of corporate travel at that market also recovers.

With the balance of supply and demand as tight as it is are you maybe seeing like less than the traditional difference in IPD between leisure and corporate and so maybe that wouldn't be the same headwind to RPT as you might ordinarily expect or how do you think these things.

Net out going forward sure well I mean first I'll say your question reflects kind of why we're now playing apropos. The question earlier to multiple sort of pockets of demand because you will see sort of expression of demand different right across each international inbound is improving.

Okay, and it's a very attractive segment for us by virtue of what we realize on rate and equally what we take in terms of value added services and the fact that the.

Testing sort of restrictions around COVID-19 were lifted on inbound into the U S.

Thats quite positive and Oh by the way I would tell you that our European business is seeing exceptional growth and exceptional performance as is the Asia business. So theres kind of two way travel that sort of that sort of benefiting on the Tesla side as I said in response to Andy's question earlier, we're seeing.

<unk> or Adam's question earlier, we're seeing heightened demand and elevated price by way of premium. We think we continue to capture that on the forward. The corporate segment is a really interesting one so corporate business.

In Q1 was kind of back 60% to pre Covid levels I would say that's now at about 70% of pre COVID-19 levels and I would tell you that what we're seeing in terms of rate is equally up so like sequentially Q1 to Q2, we saw roughly 28 29.

1% improvement in rate, okay around the corporate side, we're seeing similar momentum.

In corporate internationally and I would also tell you that as we look at re engagement with corporates on contract renewals, we're seeing about a 97% retention of those accounts and they are they are almost all renewing at higher rate relative to where the older contract.

And so those are obviously very good signs in the context of what corporate can produce for US yes, the only thing to add on corporate it even though the RTD is a particular drag its RPG accretive because you get to utilize the fleet between Monday through Wednesday, which by default is a bit trough year versus the the weekend right. So again the RPE drive.

From our fleet.

Roy standpoint, it's good because I get to use the asset a bit more on early part of the week.

Thank you sure.

This concludes today's Q&A session I would now like to hand over to Stephen Scherr, Chief Executive Officer. Please go ahead.

So I would like to thank you all for your participation on today's call I Hope the call left you with a sense of the progress we are making on our strategic and operational advancements and an equally demonstrated a level of adaptability of our business more broadly.

We look forward to sharing further updates with you at our next call and until then stay safe and enjoy the balance of the summer and I'll now turn it back to the operator.

Thank you Sir this concludes the Hertz Global Holdings second quarter 2022 earnings Conference call. Thank you for your participation.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

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