Q3 2023 Hertz Global Holdings Inc Earnings Call
Speaker 1: transcript
Speaker 1: Welcome to the Hertz Global Holdings third quarter 2023 earnings call.
Welcome to the Hertz Global Holdings' third quarter 2023 earnings call.
Speaker 1: transcript
Speaker 1: Currently, all lines are in a listen-only mode. Following management's commentary, we will conduct a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised.
Currently all lines are in a listen only mode. Following management's commentary, we will conduct a question and answer session to ask a question. During the session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised I would like to remind you that this morning's call.
Speaker 1: transcript
Speaker 1: I would like to remind you that this morning's call is being recorded by the company.
Is being recorded by the company.
Speaker 1: transcript
Speaker 1: I would now like to turn the call over to your host, Johan Rawlinson, Vice President of Investor Relations. Please go ahead.
I would now like to turn the call over to your host Johan Rawlinson Vice President of Investor Relations. Please go ahead.
Speaker 2: transcript
Speaker 2: 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, and these can be accessed through the investor relations section of our website.
Good morning, 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 and these can be accessed through the Investor Relations section of our website.
Speaker 2: transcript
Speaker 2: Our slides this call to represent a new approach and I intend to provide more detail and transparency on our results. We hope you find them useful. I want to remind you that certain statements made on this call contain forward looking information.
The school to represent a new approach and are intended to provide more detail and transparency on our results. We hope you find them useful I want to remind you that certain statements made on this call contain forward looking information.
Speaker 2: transcript
Speaker 2: Forward looking statements are not a guarantee of performance and by their nature are subject to inherent uncertainties. Actual results made different materially. Any forward looking information related on the school speaks only as of today's date and the company undertakes no obligation to update that information to reflect change circumstances.
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 the company undertakes no obligation to update that information to reflect changed circumstances.
Speaker 2: transcript
Speaker 2: Additional information concerning these statements is contained in our earnings press release and in the risk factors and forward looking statement section of our 2022 form 10K and our third quarter 2023 form 10Q filed with the SEC. These documents are available on the Investor Relations section of the Hertzwerp site.
Additional information concerning these statements is contained in our earnings press release and in the risk factors and forward looking statements section of our 2022 Form 10-K, and our third quarter 2023 Form 10-Q filed with the ACC. These documents are available on the investor.
Our relations section of the Hertz website today.
Speaker 2: transcript
Speaker 2: Today we'll use certain non- GAAP financial measures which are reconciled with gap numbers in our earnings press release and earnings presentation available on our website. We believe that these non- GAAP measures provide additional information about our operations allowing better evaluation of our profitability and performance. Unless otherwise noted, our discussion today focuses on our global business.
Today, we'll use certain non-GAAP financial measures, which are reconciled with GAAP numbers in our earnings press release and earnings presentation available on our website. We believe that these non-GAAP measures provide additional information about our operations, allowing beta evaluation of our profitability and performance.
Otherwise noted our discussion today focuses on our global business.
Speaker 2: transcript
Speaker 2: On the call this morning, we have Stephen Schur, our chief executive officer, and Alex Brooks, our chief financial officer. I'll now turn the call over to Stephen.
On the call. This morning, we have Stephen <unk>, our Chief Executive Officer, and Alex Brooks, Our Chief Financial Officer, I'll now turn the call over to Steven.
Speaker 3: transcript
Speaker 3: Good morning and thank you for joining our third quarter earnings call. By now you have likely seen our announcement on the appointment of Justin Kepi as our new chief operating officer, effective November 15th. Justin joins us from carrier corporation where he let a multi billion dollar division. He's a strong leader with experience in both the private sector and the U.S. military. Justin is a graduate of West Point in Harvard Business School and I look forward to closely working with him as he leads the day-to-day execution of our business.
Good morning, and thank you for joining our third quarter earnings call by now you've likely seen our announcement on the appointment of Justin Kepi as our new Chief operating officer effective November 15th.
Justin joins Us from Courier Corporation, where he led a multibillion dollar division is a strong leader with experience in both the private sector in the U S. Military Justin is a graduate of West point, and Harvard business School, and I look forward to closely working with him as he leads the day to day execution of our business.
Speaker 3: transcript
Speaker 3: With that, I will now turn to our results for the third quarter. Revenue in the quarter was $2.7 billion, representing the highest quarterly reported revenue in the company's history. Revenue grew 8% versus 1 year ago and 11% sequentially. Volume is measured by transaction days were strong, up 16% versus Q3 of last year, and up 9% sequentially.
With that I will now turn to our results for the third quarter.
Revenue in the quarter was $2 $7 billion, representing the highest quarterly reported revenue in the company's history revenue grew 8% versus one year ago and 11% sequentially.
Liam as measured by transaction days were strong up 16% versus Q3 of last year and up 9% sequentially demand in the quarter was strong across our business with leisure corporate and rideshare volumes all up year over year, demonstrating the continued strength of the traveling consumer of note our rideshare.
Speaker 3: transcript
Speaker 3: Demand in the quarter was strong across our business with leisure, corporate and rideshare volumes all up year over year, demonstrating the continued strength of the traveling consumer. Of note, our rideshare volume was up 50% year over year with sequential growth of 12%.
Volume was up 50% year over year with sequential growth of 12%.
Speaker 3: transcript
Speaker 3: Pricing improved sequentially, but was down year over year against elevated levels in 2022. While the sequential move up of just over 2% trailed our expectations from an industry perspective, market shares appeared stable in the quarter amidst relatively stable pricing among our major competitors.
Pricing improved sequentially, but was down year over year against elevated levels in 2022.
While the sequential move up just over 2% trailed our expectations from an industry perspective market shares appears stable in the quarter I mean, it's relatively stable pricing among our major competitors.
Speaker 3: transcript
Speaker 3: We believe that various inflationary factors will continue to support tighter fleets and more elevated rates versus those historically experienced in the industry. All consistent with our ROA folks.
We believe that various inflationary factors will continue to support tighter fleets and more elevated rates versus those historically experienced in the industry all consistent with our ROA focus as.
Speaker 3: transcript
Speaker 3: As we move through October , which is showing ongoing strength in leisure across North America, as well as Europe , we still maintain that year-over-year declines will moderate from here. In all, leisure bookings remain strong, inbound travel is increasing, and rideshures growing, and what we believe are the attractive economics to drivers of renting cars from her.
As we moved through October, which is showing ongoing strength in leisure across North America as well as Europe, we still maintain that year over year declines will moderate from here and all leisure bookings remained strong inbound travel is increasing and rideshare is growing and what we believe are the attractive economics to drivers of renting cars from <unk>.
Speaker 3: transcript
Speaker 3: Given the focus on pricing, let me make one additional point on rate to help reconcile RPD being up 2% while large segments of our business were up higher, as I will speak to in a moment. There are customer channels in our business like Leisure, which are subject to more dynamic market pricing. There are also channels like Rideshare and Insurance Replacement, where rate is more fixed or contractual in nature.
Hertz.
Given the focus on pricing, let me make one additional point on rate to help reconcile our P D being up 2%, while large segments of our business were up higher because I will speak to in a moment.
There are customer channels in our business like leisure, which are subject to more dynamic market pricing. They're also channels like rideshare and insurance replacement where rate is more fixed or contractual in nature.
Speaker 3: transcript
Speaker 3: Just focusing on pricing in our North American leisure business, the largest by transaction days, RPD in that channel was up more than 6% over the prior quarter, excluding the delutive impact of EVs. By comparison, RPD and our more fixed rate businesses in North America was roughly flat frequently, and therefore drove the system wide number lower to plus 2%.
Just focusing on pricing in our North American leisure business, the largest by transaction days RP D. In that channel was up more than 6% over the prior quarter, excluding the dilutive impact of Evs by comparison, our P. D and are more fixed rate businesses in North America was roughly flat sequentially and therefore drove the system.
White number lower to plus 2%.
Speaker 3: transcript
Speaker 3: Let me reflect on the cost side of the equation. Our adjusted corporate EBITDA in Q3 was $359 million, reflecting a 13% margin. While this trend trailed our expectations, our performance still reflected strong demand, higher sequential RPD, a stable industry environment, and improving operating fundamentals across the company.
Let me reflect on the cost side of the equation, our adjusted corporate EBITDA in Q3 was $359 million, reflecting a 13% margin. While this trend trailed our expectations. Our performance still reflected strong demand higher sequential art P D a stable industry environment and improving.
<unk> fundamentals across the company.
Speaker 3: transcript
Speaker 3: Our direct operating expenses remained controlled in the quarter as they grew with transaction volume. On a unit basis, we achieved productivity gains across most categories of our DOE. The exception remained vehicle damage costs, particularly those on our EVs, which we are addressing in a very targeted way.
Our direct operating expenses remained controlled in the quarter as they grew with transaction volume on a unit basis, we achieved productivity gains across most categories of our D O.
The exception remained vehicle damage costs, particularly those on our Evs, which we are addressing in a very targeted way.
Speaker 3: transcript
Speaker 3: Exploiting net collision and damage costs in both griots, DOE per transaction day was down 10% year over year, which is consistent with our goals coming into 2023, and reflects our continued focus on our global expense.
Excluding that collision and damage costs in both periods <unk> per transaction day was down 10% year over year, which is consistent with our goals coming into 2023 and reflects our continued focus on our global expense base. We are beginning to benefit from our significant investments in field technology and <unk>.
Speaker 3: transcript
Speaker 3: We are beginning to benefit from our significant investment in fuel technology and resulting productivity, including digital check-in, telematics and vehicle inventory tools, and from our work to contain S-GNA.
<unk> productivity, including digital check in telematics and vehicle inventory tools and from our work to contain SG&A.
Speaker 3: transcript
Speaker 3: We remain confident in our trajectory. We have made considerable progress in the improvement of our technology, migration of systems to the cloud, investment in talent, and better control of how we operate our fleet. In addition to improving our customer offering, nevertheless, we underperformed in Q3 relative to our expectations, and must correct the issues that weighed on our results.
We remain confident in our trajectory we have made considerable progress in the improvement of our technology migration of systems to the cloud investment in talent and better control of how we operate our fleet and.
In addition to improving our customer offering Nevertheless, we underperformed in Q3 relative to our expectations and must correct the issues that weighed on our results.
Speaker 3: transcript
Speaker 3: to better understand these factors and provide additional context on the quarter. I wanna talk briefly about each of our premium Hertz brand, our value brands, and our right share and electric vehicle strategies. Thank you.
To better understand these factors and provide additional context on the quarter I want to talk briefly about each of our premium Hertz brand our value brands in a rideshare and electric vehicle strategies let.
Let me begin with Hertz.
Speaker 3: transcript
Speaker 3: This was a bright spot in the quarter. As you know, we have been working hard to increase brand loyalty and recurring business for our premium Hertz brand. We are driving initiatives to improve the customer experience from the shop and book aspects of our digital assets to rental delivery. In addition to building financially attractive partnerships across the travel and
This was a bright spot in the quarter as you know we've been working hard to increase brand loyalty and recurring business for our premium Hertz brand, we are driving initiatives to improve the customer experience from the shopping book aspects of our digital assets to rental delivery. In addition to building financially attractive partnerships across the travel industry.
Speaker 3: transcript
Speaker 3: We are confident that these initiatives strengthen the brand and yield better financial outcomes for the company, including through pricing leverage, particularly in markets that demonstrate some price inelasticity.
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We are confident that these initiatives strengthen the brand and yield better financial outcomes for the company, including through pricing leverage, particularly in markets that demonstrate some price elasticity.
Speaker 3: transcript
Speaker 3: To this point, and as I referenced earlier, pricing for the Hertz Leisure brand led all other channels in the quarter. This is the product of a very purposeful strategy to identify specific markets by brand, customer type, and even car class, where we see the opportunity to realize better price.
To this point and as I referenced earlier pricing for the Hertz Leisure brand led all other channels in the quarter.
This is the product of a very purposeful strategy to identify specific markets by brand customer type and even car class, where we see the opportunity to realize better pricing.
Speaker 3: transcript
Speaker 3: We also continued in Q3 to grow our corporate and insurance replacement business revenues under the Hertz brand. As I noted, rates for these customer channels are knowingly diluted to headline RPD. However, given given better intraweek utilization for corporate and longer length of keep on insurance replacement and therefore lower cost, they are each important to our total business.
We also continued in Q3 to grow our corporate and insurance replacement business revenues under the Hertz brand as I noted rates for these customer channels are knowingly dilutive to headline our P. D. However, given given better intra week utilization for corporate and longer length of keep on insurance replacement and therefore lower cost.
They're each important to our total business mix.
Speaker 3: transcript
Speaker 3: Turning next to our value brands, Dollar and Thrifty, your results validate our strategy. While we have enjoyed a pricing premium to several key competitors in the Hertz Leisure Channel, we've continued to see a relative discount in our value brands.
Turning next to our value brands dollar and thrifty here.
Your results validate our strategy, while we have enjoyed a pricing premium to several key competitors and the Hertz leisure channel, we've continued to see a relative discount and our value brands.
Speaker 3: transcript
Speaker 3: Our strategy to reinvigorate dollar thrifty aims to fix
Our strategy to reinvigorate dollar thrifty aims to fix this we are aggressively at work to deliver the service sought by value oriented customers to help us close the gap and.
Speaker 3: transcript
Speaker 3: We are aggressively at work to deliver the service sought by value-oriented customers to help us close the gap. Enhancements to our customer experience expected to develop throughout 2024 across our system include improved shop and book on digital channels, advanced check-in, digital offering of value-added services, and assigned cars with field agents ready to facilitate upgrades.
Enhancements to our customer experience expected to develop throughout 2024 across our system, including clear include improved shop and book on digital channels advanced checking digital offering of value added services and assign cars with field agents ready to facilitate upgrades.
Speaker 3: transcript
Speaker 3: These products were not sufficiently in evidence during the summer to yield the unit revenue results that we saw at Hertz, as our sequential rate increase for dollar was up only 3%.
These products were not sufficiently in evidence during the summer to yield the unit revenue results that we saw at Hertz as our sequential rate increase for dollar was up only 3%.
Speaker 3: transcript
Speaker 3: We believe as our initiatives mature, Dollar and Thrifty will be better positioned to move closer to pricing parity with more established value brands in the market. We also expect margins for this channel to improve on the back of lower cost of rental delivery and less expensive vehicles.
We believe as our initiatives mature dollar and thrifty will be better positioned to move closer to pricing parity with more established value brands in the market.
We also expect margins for this channel to improve on the back of lower cost of rental delivery and less expensive vehicles. Finally, it is worth pointing out that improvement to the customer experience, which enables us to take rate up even absent share gain will alone improved financial performance.
Speaker 3: transcript
Speaker 3: Finally, it is worth pointing out that improvement to the customer experience, which enables us to take rate up even apps and share gain will alone improve financial performance.
Speaker 3: transcript
Speaker 3: Let me now turn to our right-year business and EV strategy, which are complementary.
Let me now turn to our rideshare business and EV strategy, which are complementary.
Speaker 3: transcript
Speaker 3: Our rideshare business is growing with year-over-year volume up 50 percent. The business is positioned well for further expansion as new markets open, including cities that are working to mandate the deployment of EVs and urban mobility, and those like New York City, which just recently announced that it is making more licenses specifically available to EVs for rideshare use.
A rideshare business is growing with year over year volume up 50%.
The business is positioned well for further expansion as new markets open including cities that are working to mandate the deployment of Evs and urban mobility and those like New York City, which just recently announced that it is making more licenses specifically available to evs for rideshare use.
Speaker 3: transcript
Speaker 3: Hertz is proving to be an affordable entry point for drivers and an available source of electric vehicles as mobility companies and their drivers adopt electrification.
Purchase proving to be an affordable entry point for drivers and an available source of electric vehicles as mobility companies and their drivers adopt electrification.
Speaker 3: transcript
Speaker 3: Rising fuel prices and attractive revenue incentives from shared mobility companies are creating opportunity for us in a customer channel where we continue to build a best-in-class offer.
Rising fuel prices and attractive revenue incentives from shared mobility companies are creating opportunity for us and our customer channel, where we continue to build a best in class offering.
Speaker 3: transcript
Speaker 3: Our recent progress is reassuring, as earlier in 2023, an occasion by higher incidence of damage among EV ride share drivers, we took steps to moderate our ride share growth and re-underwrite the ride share driver bill.
Our recent progress is reassuring as earlier in 2023 and occasion by higher incidence of damage. Among EV rideshare drivers, we took steps to moderate our rideshare growth and re underwrite the rideshare driver base.
Speaker 3: transcript
Speaker 3: This meant purposely slowing the supply of EVs into rideshare and moving more electric vehicles into the Leisure Channel to facilitate their ongoing utilization.
This meant purposely slowing the supply of evs into rideshare, and moving more electric vehicles into the leisure channel to facilitate their ongoing utilization.
Speaker 3: transcript
Speaker 3: With hindsight, this left Leisure overfleeted with EVs. As a result, RPD for our electric vehicles in Leisure dropped, which contributed to the lower RPD performance for the company in the quarter.
With hindsight is left leisure over fleeting with Evs as a result, our P. D for our electric vehicles, and leisure dropped which contributed to the lower RPT performance for the company in the quarter.
Speaker 3: transcript
Speaker 3: As you would expect, we have been parsing the data on damage and actively remediating the cause.
As you would expect we have been parsing the data on damage and actively remediated the causal.
Speaker 3: transcript
Speaker 3: And during Q4, we are more confident in the quality of demand in rideshare, buffeted by enhanced processes to better underwrite drivers and to improve the mix of more experienced, higher length of keep drivers.
And during Q4, we are more confident in the quality of demand and rideshare buffeted by enhanced processes to better underwrite drivers and to improve the mix of more experienced higher length of keep drivers. This is enabling us to return confidently to a strategy of growing the level of our existing electric fleet that is allocated to this.
Speaker 3: transcript
Speaker 3: This is enabling us to return confidently to a strategy of growing the level of our existing electric fleet that is allocated to this business.
Speaker 3: transcript
Speaker 3: Over the next several quarters, we expect to move an increasing number of our current electric vehicles into the ride share fleet, supplementing the several thousand EV on rents made in just the last several months.
Business over the next several quarters, we expect to move an increasing number of our current electric vehicles into the rideshare fleet supplementing their several thousand EV on rents made in just the last several months.
Speaker 3: transcript
Speaker 3: As we pull these cars from Leisure, we are simultaneously tightening the EV supply in that channel and more accurately matching the fleet to demand, in effect, seeking to reverse the issue that pressured the quarter and adhering to our ROA mentality.
As we pull these cars some leisure we are simultaneously tightening the EV supply in that channel and more accurately matching the fleet to demand and in fact seeking to reverse the issue that pressured the quarter and adhering to our ROA mentality.
Speaker 3: transcript
Speaker 3: We're also continuing to take steps to rectify the issue of elevated EV damage costs broadly, which we had thought would come down more quickly than they have. Let me share a bit more context on the damage equation.
We're also continuing to take steps to rectify the issue of elevated E V damage costs broadly, which we had thought would come down more quickly than they have let me share a bit more context on the damage equation.
Speaker 3: transcript
Speaker 3: First, while conventional maintenance on electric vehicles remained lower relative to comparable ICE vehicles in Q3, higher collision and damage repairs on EVs continued to weigh on our results and negatively impacted EBITDA. For context, collision and damage repairs on an EV can often run about twice that associated with a comparable combustion engine vehicle.
First while conventional maintenance on electric vehicles remained lower relative to comparable ice vehicles in Q3 higher collision and damage repairs on Evs continued to weigh on our results and negatively impacted EBITDA.
For context collision and damage repairs on an EV can often run about twice that associated with a comparable combustion engine vehicle.
Speaker 3: transcript
Speaker 3: Second, where a car is salvaged, we must crystallize at once any difference between our carrying value and the market value of that car. The MSRP declines in EVs over the course of 2023, driven primarily by Tesla, have driven the fair market value of our EVs lower as compared to last year.
Second we're of course salvaged, we must crystallized at once any difference between our carrying value and the market value of that car the.
<unk> declines any of these over the course of 2023, driven primarily by Tesla have driven a fair market value of our VEB is lower as compared to last year, such that a salvage creates a larger loss and therefore greater burden.
Speaker 3: transcript
Speaker 3: such that a salvage creates a larger loss and therefore greater burden. By contrast, market values in portions of our fleet last year exceeded carrying values, resulting in some salvages producing gains.
By contrast market values in portions of our fleet last year exceeded carrying values, resulting in some salvages producing gains.
Speaker 3: transcript
Speaker 3: While this had a negative effect in Q3, it is, of course, a VIN-specific phenomenon and should therefore not be thought of as a permanent effect on results.
While this had a negative effect in Q3. It is of course event specific phenomenon and should therefore not be thought of as a permanent effect on results.
Speaker 3: transcript
Speaker 3: Given these headwinds, we are actioning collision and damage with urgency, with particular focus on the aspects we can more readily impact, like incidents, parts procurement, and reimbursement.
Given these headwinds we are actioning collision and damage with urgency with particular focus on the aspects, we can more readily impact like incidents parts procurement and reimbursement.
Speaker 3: transcript
Speaker 3: We have activated a comprehensive end-to-end damage program from underwriting to collection.
We have activated a comprehensive end to end damage program from underwriting to collections were also developing additional easy to use educational tools uneasy functionality, but perhaps most importantly, we are working with the relevant Oems to improve outcomes based on vehicle performance.
Speaker 3: transcript
Speaker 3: We're also developing additional easy-to-use educational tools on EV functionality. But perhaps most importantly, we are working with the relevant OEMs to improve outcomes based on vehicle performance.
Speaker 3: transcript
Speaker 3: Let me try to put some dimension to the issue. Taking account of impact on depreciation, collision and damage, and RPU relating to our EV fleet, we estimate that had our fleet N2-3 been similarly sized, but comprised solely of ICE vehicles, our EBITDA margin would have been several margin points higher. This frames our challenge in as much as it reflects on the stability of our underlying business.
Let me try to put some dimension to the issue taking.
Taking account of impact on depreciation collision and damage in RPE relating to R. E V fleet, we estimate that had our fleet in Q3, and similarly sized but comprised solely of ice vehicles. Our EBITA margin would have been several margin points higher this frames, our challenge and as much as it reflects.
On the stability of our underlying business to that end, we are pulling all controllable levers to bring the incremental costs down we nonetheless remain committed to our long term strategy to electrify the fleet.
Speaker 3: transcript
Speaker 3: To that end, we are pulling all controllable levers to bring the incremental cost down. We nonetheless remain committed to our long-term strategy to electrify the fleet.
Speaker 3: transcript
Speaker 3: We believe in the value of being a first mover electric vehicles open the door to our growing presence in ride share where electrification is a fast approaching requirement, not merely an option in a channel where we are uniquely positioned.
We believe in the value of being a first mover electric vehicles open the door to our growing presence in rideshare, where electrification is a fast approaching requirement not merely an option and a channel where we are uniquely positioned.
Speaker 3: transcript
Speaker 3: We benefit from our access to partnerships with other players around electrification or open to an early mover, including those with interest in charging electric fleet management and autonomous vehicles.
We benefit from our access to partnerships with other players around electrification or open to an early mover, including those with interest in charging electric fleet management and autonomous vehicles.
Speaker 3: transcript
Speaker 3: There's also the case of corporate and government demand, which is manifesting quickly as these customers seek to satisfy their own sustainability objectives. Early engagement here is sticky.
Also the case of corporate and government demand, which is manifesting quickly as these customers seek to satisfy their own sustainability objectives early engagement here is sticky.
Speaker 3: transcript
Speaker 3: And as EV ownership grows, we expect rental demand to grow in tandem by gaining early competitive knowledge on how to manage a profitable EV rental fleet. We believe we are gaining value and positioning hurts to ramp efficiently and confidently.
And as EV ownership grows we expect rental demand to grow in tandem by gaining early competitive knowledge on how to manage a profitable EV rental fleet. We believe we are gaining value and positioning hertz to ramp efficiently and confidently.
Speaker 3: transcript
Speaker 3: And finally, the capabilities to manage an EV fleet are not learned overnight and are differentiating. The cadence of repair and maintenance is different, as is charging, demand generation, rental fulfillment, and fleet management.
And finally, the capabilities to manage an EV fleet are not learned overnight and our differentiating the cadence of repair and maintenance as different as is charging demand generation rental fulfillment and fleet management.
Speaker 3: transcript
Speaker 3: Make no mistake, we are developing a clear understanding of the key levers needed to deliver a more profitable EV rental fleet in a world that is moving toward electrification.
Make no mistake, we are developing a clear understanding of the key levers needed to deliver a more profitable E V rental fleet in a world that is moving toward electrification.
Speaker 3: transcript
Speaker 3: Transitions of this magnitude are not easy, and there are important factors, including charging infrastructure, the pace of OEM production, and the growth of the EV aftermarket that we simply cannot control. Nonetheless, there's an undeniable transformation underway. The share of new electric vehicle sales in the U.S. is growing, and studies of current EV ownership evidence lower incidents of damage and collision than for ICE vehicles, not higher as we are experiencing.
Transitions of this magnitude are not easy and there are important factors, including charging infrastructure the pace of OEM production and the growth of the E V aftermarket that we simply cannot control. Nonetheless, there is an undeniable transformation underway.
The share of new electric vehicle sales in the U S is growing and studies of current E. The ownership evidenced lower incidents of damage and collision then for ice vehicles not higher as we are experiencing we believe these trends will converge and some of our objective is straightforward we want to offer our customers the widest possible choice of via.
Speaker 3: transcript
Speaker 3: We believe these trends will converge in some our objective is straightforward. We want to offer our customers the widest possible choice of vehicle makes and models, whether gas powered or electric, so that they can travel the way that best suits their needs and preferences.
All makes and models, whether gas powered or electric so that they can travel the way that best suits their needs and preferences.
Speaker 3: transcript
Speaker 3: We know the challenges at hand and are working to remedy that which we can, and we'll pace ourselves accordingly with an expectation that our inflating of EVs will be slower than our prior expectations. But we will be stronger for having begun the journey when we did.
We know the challenges at hand, and are working to remedy that which we can and will pace ourselves accordingly, with an expectation that our in fleeting of evs will be slower than our prior expectations, but we will be stronger for having begun the journey when we did.
Speaker 3: transcript
Speaker 3: Looking past our results in Q3, I want to close my remarks with a few comments about our expectations on the forward.
Looking past our results in Q3, I want to close my remarks with a few comments about our expectations on the forward.
Speaker 3: transcript
Speaker 3: 2023 has become a transitional year for the company, where we continue to fix and improve the foundational elements of the business, from basic technology and field capability through to product offerings and brand strengthening. In 2024, we will focus on continuing to execute on our revenue and cost initiatives with an expectation that they will contribute to our financial performance throughout the year and into 2025 as they begin to mature.
2023 has become a transitional year for the company, where we continue to fix and improve the foundational elements of the business from basic technology and field capability through the product offerings and brand strengthening in 'twenty 'twenty four we will focus on continuing to execute on our revenue and cost initiatives with an X.
<unk> that they will contribute to our financial performance throughout the year and into 2025 as they begin to mature.
Speaker 3: transcript
Speaker 3: As I have noted before, and as we present on page 10 of our accompanying material, the initiatives in focus include both operational projects as well as newer business.
As I have noted before and as we present on page 10 of our accompanying material the initiatives and focus include both operational projects as well as newer business lines.
Speaker 3: transcript
Speaker 3: Namely, harvesting our meaningful investment in IT, both in terms of reduced costs and improved revenue management, all with an eye to increase the margin on our standing business.
Namely harvesting our meaningful investment N I T. Both in terms of reduced costs and improved revenue management, all with an eye to increase the margin on our standing businesses.
Speaker 3: transcript
Speaker 3: Continuing to elevate our operational efficiency on a global basis through improved productivity and fixed cost leverage, including Europe , where we continue to rationalize our footprint.
Continuing to elevate our operational efficiency on a global basis through improved productivity and fixed cost leverage, including Europe, where we continue to rationalize our footprint.
Speaker 3: transcript
Speaker 3: Expanding on our vehicle sales results through improved retail operations and our partnership with Carvana and other similar outlets.
Expanding on our vehicle sales results through improved retail operations, and our partnership with Carvana and other similar outlets.
Speaker 3: transcript
Speaker 3: learning from our initial engagements with EVs to reduce expenses and improve the margin profile across the whole of the business.
Learning from our initial engagements with evs to reduce expenses and improve the margin profile across the whole of the business.
Speaker 3: transcript
Speaker 3: improving the competitiveness of our value brands dollar and thrifty to enable our business to close the pricing gap to our more established competitors and finally growing our ride share
Improving the competitiveness of our value brands dollar and thrifty to enable our business to close the pricing gap to our more established competitors and finally growing our rideshare business.
Speaker 3: transcript
Speaker 3: Taken together, these initiatives represent an opportunity to materially enhance our financial performance and add in the range of $500 million in incremental EBITDA at maturity.
Taken together these initiatives represent an opportunity to materially enhance our financial performance and add in the range of $500 million in incremental EBITDA at maturity.
Speaker 3: transcript
Speaker 3: We also believe these initiatives will render the business more durable to withstand macro pressures. In all, we are setting a course for the company.
We also believe these initiatives will render the business more durable to withstand macro pressures in all we are setting a course for the company to improve with a new C. O O set to take his seat we look forward to the opportunity to host an investor day in the quarters ahead to provide greater detail around our initiatives and their expected financial contribution.
Speaker 3: transcript
Speaker 3: With a new COO set to take his seat, we look forward to the opportunity to host an investor day in the quarters ahead to provide greater detail around our initiatives and their expected financial contribution. I continue to believe that the business opportunity ahead of us is significant and achievable.
I continue to believe that the business opportunity ahead of us is significant and achievable.
Speaker 3: transcript
Speaker 3: Of course, in the end, we will be measured on the delivery of these initiatives and not their mere mention.
Of course in the end, we would be measured under delivery of these initiatives and not their mere mentioned that said the work has begun and much of the capital has been invested it is onto execute let me now turn to Alex for more detail on our quarterly results.
Speaker 3: transcript
Speaker 3: That said, the work has begun, and much of the capital has been invested. It is on to execute.
Speaker 3: transcript
Speaker 3: Let me now turn to Alex for more detail on our quarterly results.
Speaker 4: transcript
Speaker 4: Thank you, Stephen and good morning. Everyone as was noted revenue of 2.7Billion dollars demonstrated growth of 8% versus 1 year ago and 11% sequentially to give you color on the segment. This reflected year over year increases of 6% in the America segment and 17% in our international segment.
Thank you Steven and good morning, everyone.
Revenue of $2 $7 billion demonstrated growth of 8% versus one year ago and 11% sequentially.
To give you a color on the segments. This reflected year over year increases of 6% in the Americas segment and 17% in our international segment.
Speaker 4: transcript
Speaker 4: Volume was up substantially year over year in both segments, as well as sequentially. Crising also grew sequentially, up 2% in the Americas and 3% in international. Although down year over year 8% in Americas and 6% in international, as compared to exceptionally strong rates in Q3 2022.
Volume was up substantially year over year in both segments as well as sequentially pricing.
Pricing also grew sequentially up 2% in the Americas, and 3% and international although down year over year, 8% in Americas, and 6% and international as compared to exceptionally strong rates in Q3 2022.
Speaker 4: transcript
Speaker 4: Our average global fleet size was 590,000 vehicles and utilization of our fleet remained high at 83%, contributing to global monthly revenue per unit for the quarter of $1,596, up 5% sequentially.
Our average global fleet size with 590000 vehicles and utilization of our fleet remained high at 83% contributing to global monthly revenue per unit for the quarter of $1596 up 5% sequentially.
Speaker 4: transcript
Speaker 4: Q3 utilization in the Americas was 84%, up 320 basis points year over year, and up 160 basis points sequentially.
Q3 utilization in the Americas, with 84% up 320 basis points for the year over year and up 160 basis points sequentially.
Speaker 4: transcript
Speaker 4: International utilization in Q3 was 80 percent, up 330 basis points year over year, and 180 basis points sequentially, reflecting continued strength and demand. Strong utilization resulted in healthy RPU of $1,636 in the Americas and $1,448 in international.
International utilization in Q3, with 80% up 330 basis points year over year, and 180 basis points sequentially, reflecting continued strength in demand.
So on utilization resulted in healthy RPM of $1636 in the Americas, and 1448 and international.
Speaker 4: transcript
Speaker 4: net depreciation per unit in Q3 with $282 per month within the range guided on our last call.
Net depreciation per unit in Q3, with 208 and $82 per month within the range guided on our last call.
Speaker 4: transcript
Speaker 4: As Steven noted, adjusted corporate EBITDA was $359 million in Q3, a margin of 13%. I would note the SGNA at $209 million for the quarter is within the Outlook provided on our last call.
As Stephen noted adjusted corporate EBITDA was $359 million in Q3, a margin of 13%.
No the SG&A of $209 million for the quarter is within the outlet provided on our last call.
Speaker 4: transcript
Speaker 4: As noted earlier, DOE per transaction day continued to reflect elevated collision and damage, mitigated by various cost discipline and productivity initiatives.
As noted earlier DLA per transaction day continue to reflect elevated collision and damage mitigated by various cost discipline and productivity initiatives.
Speaker 4: transcript
Speaker 4: As we noted, excluding net collision and damage costs in both periods, DOE per transaction day decreased by approximately 10% year-over-year for Q3, largely driven by our efforts to improve field personnel productivity and reduce fleet-related costs like maintenance, transportation, fuel, and facilities. Turning to our capital.
As we noted excluding net collision damage costs in both periods.
Periods Doa per transaction day decreased by approximately 10% year over year for Q3, largely driven by our efforts to improve field personnel productivity and reduce fleet related costs like maintenance transportation fuel and facilities.
Turning to our capital structure and liquidity.
Speaker 4: transcript
Speaker 4: With respect to our balance sheet, net corporate debt at the end of the quarter with $2.3 billion. Net corporate leverage for Q3 was 1.9 times, modestly above our target of 1.5.
With respect to our balance sheet net corporate debt at the end of the quarter with $2 $3 billion net corporate leverage for Q3 was one nine times modestly above our target of one five times.
Speaker 4: transcript
Speaker 4: At September 30th, our available liquidity was $1.7 billion, which includes approximately $600 million of unrestricted cash.
At September 30th our available liquidity was $1 $7 billion, which includes approximately $600 million of unrestricted cash.
Speaker 4: transcript
Speaker 4: During the quarter, we issued $1 billion of sixth rate rental car asset back notes under the US ABS facility, with a combined average interest rate of approximately 6.5%.
During the quarter, we issued $1 billion of fixed rate rental car asset backed notes under the U S. ABS facility with a combined average interest rate of approximately six 5%.
Speaker 4: transcript
Speaker 4: $500 million of these notes mature in 2027 and $500 million mature in 2029.
$500 million of these notes mature in 2027 and $500 million mature in 2029.
Speaker 4: transcript
Speaker 4: We also extended the maturity on the European ABS to March 2026, along with an upsize of 100 million euros.
We also extended the maturity on the European ABS to March 2026, along with an upsize of 100 million euros.
Speaker 4: transcript
Speaker 4: The blended rate in our US ABS facility remains at approximately 4% and carries rate caps as required under the facility.
The blended rate in our U S. ABS facility remains at approximately 4% and carries rate caps as required under the facility.
Speaker 4: transcript
Speaker 4: At September 30, we had capacity under our ABF of $2.1 billion globally, and our vehicle debt portfolio was approximately 70% fixed rate, which serves to mitigate the impact of a rising rate environment.
At September 30, we had capacity under our ABS of $2 $1 billion globally, and our vehicle debt portfolio with approximately 70% fixed rate, which tariffs to mitigate the impact of a rising rate environment.
Speaker 4: transcript
Speaker 4: we also maintain sufficient equity cushion in our ABS at quarter end. That said, with higher potential input costs on vehicles, including the risk of higher interest rate expense, we will continue to remain disciplined on fleet size and believe the broader environment for fleet will be disciplined as well.
We also maintained sufficient equity cushion in our ABS at quarter end that said with higher potential input costs on vehicles, including the risk of higher interest rate expense. We will continue to remain disciplined on fleet size and believe the broader environment for fleet will be disciplined as well.
Speaker 4: transcript
Speaker 4: Overall, we continue to maintain a well-structured debt maturity ladder with no material corporate debt maturity until 2026.
Overall, we continue to maintain a well structured debt maturity ladder with no material corporate debt maturities until 2026.
Speaker 4: transcript
Speaker 4: Turning to our cash flow and capital allocation. For the third quarter, adjusted free cash flow was $313 million. Adjusted operating cash flow was $250 million with fleet cat-backs as an inflow of $124 million. On the back of the start of our seasonal defleating. Non-fleet cat-backs came in at 20-
Turning to our cash flow and capital allocation for the third quarter adjusted free cash flow was $313 million.
<unk> operating cash flow was $215 million with fleet Capex as an inflow of $124 million on the back of the start of our seasonal de fleeting.
Non fleet Capex came in at $26 million.
Speaker 4: transcript
Speaker 4: Lastly, in the quarter, we repurchased $50 million of our comments doc, bringing year-to-date repurchases to $250 million.
Lastly, in the quarter, we repurchased $50 million of our common stock, bringing year to date repurchases to $250 million.
Speaker 4: transcript
Speaker 4: Finally, let me give some color around our forward-looking expectations. Looking to Q4, we anticipate our revenue to move in line with historical season alleging as reflected in both RPD and transaction dates.
Finally, let me give some color around our forward looking expectations looking to Q4, we anticipate our revenue to move in line with historical seasonality as reflected in both our P D and transaction days.
Speaker 4: transcript
Speaker 4: We expect depreciation to key off the market and to fall within a range of $280 to $300 per unit with variability to be occasioned by volatility and residual values, which could alter growth and net depreciation, and which may cause us to adjust our fleet plans accordingly through the end of the year.
We expect depreciation to key off the market and to fall within a range of 280 to $300 per unit with variability to be occasions by volatility and residual values, which could alter gross and net depreciation and which may cause us to adjust our fleet plans accordingly through the end of the year.
Speaker 4: transcript
Speaker 4: In closing, let me reiterate the strength of our core RAC business, especially as it relates to the premium Hertz brand. We believe there is substantial upside opportunity to grow margins and cash flows as we work through the EV headwinds, reach the end of our elevated technology expenditure, and continue to optimize our value brands and European operations. We continue to expect our growth initiatives to meaningfully contribute to both the top and bottom lines. With that, let's open the
In closing, let me reiterate the strength of our core rack business, especially as it relates to the premium Hertz brand. We believe there is substantial upside opportunity to grow margins and cash flows as we worked through the EV headwinds reached the end of our elevated technology expenditure and continue to optimize our value brands and European operations, we can.
Continue to expect our growth initiatives to meaningfully contribute to both the top and bottom lines with that let's open the call for Q&A.
Speaker 1: transcript
Speaker 1: We will now open the line for questions. Please limit your questions to one question per speaker and one follow-up if needed. To ask a question, please dial star 11 on your telephone. If you wish to cancel your question, dial star 11 again. One moment.
We will now open the line for questions. Please limit your questions to one question per speaker and one follow up if needed to ask a question. Please dial star one one on your telephone if you wish to cancel your question dial Star one again.
One moment for our first question.
Speaker 3: transcript
Speaker 3: Our first question comes from Chris Rwanka with Deutsche Bank. Your line is open. Hey, good morning, everyone. Thanks for taking our question. It's Chris Rwanka with Deutsche Bank. Our first question comes from Chris Rwanka with Deutsche Bank.
Our first question comes from Chris <unk> with Deutsche Bank. Your line is open.
Hey, good morning, everyone. Thanks for taking our questions today.
Hey, Chris Stevens.
Speaker 5: transcript
Speaker 5: Morning. Stephen, you know, I think you said that your margin for the quarter is around 13%, but if you normalized your business for all the ICE vehicles, it would have been, I guess, several basis points, several hundred basis points higher.
Good morning, Stephen I think you said that your margin for the quarter was around 13%, but if you normalized your business for all the ice vehicles that would have been I guess several basis points several hundred basis points higher. So I guess the question is I would assume that you would kind of only by Evs. If you thought it would be accretive to margin rate, but you are on your <unk>.
Speaker 5: transcript
Speaker 5: So, I guess the question is, I would assume that you would kind of only buy EVs if you thought it would be a creative to margin, right? But you're suggesting that the economics of the EVs will improve over time, but I mean, how do you get there? Are there, what composition of EVs do you need to make that margin common and come true? And I guess just wire the economics of EVs improving over time.
Suggesting that the economics of the Evs will.
Improve over time, but I mean, how do you get there I mean are there what what composition of Evs do you need to make that margin comment come true and I guess, just why are the economics.
EV is improving over time.
Speaker 3: transcript
Speaker 3: Sure, thanks for the question, Chris. You're right. Our reported margin was 13% as an, and as I referenced.
Sure. Thanks for the question, Chris you're right our reported margin was 13% as and as I referenced if you sort of put put boundary around the cost challenges associated with Evs, you would've been several points higher several hundred basis points higher.
Operator: Welcome to the Hertz Global Holdings 3rd quarter, 2023 earnings call. Currently all signs are in a listen only mode. Following management's commentary, we will conduct a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. I would like to remind you that this morning's call is being recorded by the company.
Speaker 3: transcript
Speaker 3: If you sort of, you know, put boundary around the cost challenges associated with EVs, it would have been several points higher, several hundred basis points higher. I would say on the EVs and margin, remember, none of this escapes sort of the regimen of subjecting any asset to an ROA analysis and ensuring that the forward returns are positive in any asset that we bring in.
I would say on on the Evs and margin remember none of this escapes sort of that the regimen of subjecting any asset two in a row, a analysis and ensuring that the forward returns are positive in any asset that we bring in and equally recall that when we first underwrote the the margin potential.
Johann Rawlinson: I would now like to turn the call over to your host, Johann Rawlinson, Vice President of Investur 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 slide to accompany our conference call and these can be accessed through the investor relations section of our website. Our slides this call to represent a new approach and are intended to provide more detail and transparency on our results.
Speaker 3: transcript
Speaker 3: and equally recall that when we first underwrote the margin potential around these, you know, these were priced materially higher than where we are right now. And so on the standing fleet, there was very adequate margin to be embedded. What has eroded that margin on the current portfolio are basically three things.
Around Evs.
These were priced materially higher than where we are right now and so on the standing fleet. There was a very adequate margin to be embedded what has eroded that margin on the current portfolio or basically three things one is depreciation.
Speaker 3: transcript
Speaker 3: One is depreciation, which was occasioned by about a drop of a third in the MSRP of these cars. Obviously, that lowered the residual and elevated depreciation.
Which was occasion by about a drop of a third in the MSRP of these cars, obviously that lowered the residual and elevated depreciation the second is around damage and salvage. This is a solvable issue and one that we are working on right. Now is both a question of incidents of damage.
Johann Rawlinson: We hope you find them useful. 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 made different materially. Any forward looking information related on the school speaks only as of today's date and the company undertakes no obligation to update that information to reflect change circumstances. Additional information concerning these statements is contained in our earnings press release and in the risk factors and forward looking statement section of our 2022 form 10K and our third quarter 2023 form 10Q filed with the SEC.
Speaker 3: transcript
Speaker 3: The second is around damage and salvage. This is a solvable issue and one that we are working on right now. It's both a question of incidents of damage and cost. In the context of incidents, we are working hard to reunderwrite to the drivers that we're putting into these cars, particularly in our rideshare business. We're looking for more experienced drivers, longer length of keep, where the incidents of damage goes down.
And cost in the context of incidents we are working hard to re underwrite to the drivers that we're putting into these cars, particularly in our rideshare business. So we're looking for more experienced drivers longer length of keep where the incidence of damage goes down.
Speaker 3: transcript
Speaker 3: And then equally on cost, as I mentioned, right now EVs are costing us about twice in terms of damage cost repair than a conventional ice vehicle.
And then equally on cost as I mentioned right now Evs are costing us about twice in terms of damage cost repair than a conventional ice vehicle two things theyre going to happen here. One our assumption is that the market is going to come our way, meaning the proliferation of aftermarket the proliferation of par.
Speaker 3: transcript
Speaker 3: Two things are going to happen here. One, our assumption is that the market's going to come our way, meaning the proliferation of aftermarket, the proliferation of parts supply is going to grow and come down in price.
Johann Rawlinson: These documents are available on the investor relation section of the Hertz website. Today we'll use certain non-gap financial measures which are reconciled with gap numbers in our earnings press release and earnings presentation available on our website. We believe that these non-gap measures provide additional information about our operations, allowing better evaluation of our profitability and performance. Unless otherwise noted, our discussion today focuses on our global business.
Supply is going to grow and come down in price, but we're not simply waiting for that to happen. We ourselves are negotiating around parts procurement at steeper discounts doing damage repair ourselves and bringing these expenses down so damaging salvage is going to come down both by <unk>.
Speaker 3: transcript
Speaker 3: But we're not simply waiting for that to happen. We ourselves are negotiating around parts procurement at steeper discounts.
Speaker 3: transcript
Speaker 3: doing damage repair ourselves and bringing these expenses down.
Speaker 3: transcript
Speaker 3: So damage and salvage is going to come down both by actions we are taking currently in addition to where the market is moving.
We are taking currently in addition to where the market is moving the third piece of the first being depreciation the second being damaged and salvage the third being RP. You that is what are we generating by way of revenue per unit on these cars and as I said in the in my prepared remarks.
Speaker 3: transcript
Speaker 3: The third piece, so the first being depreciation, the second being damage and salvage, the third being RPU. That is, what are we generating by way of revenue per unit on these cars?
Johann Rawlinson: On the call this morning we have Stephen Scher, our chief executive officer and Alex Brooks, our chief financial officer.
Speaker 3: transcript
Speaker 3: And as I said in my prepared remarks,
Stephen Scherr: I'll now turn the call over to Stephen. Good morning and thank you for joining our third quarter earnings call.
Speaker 3: transcript
Speaker 3: You know, we went through a reunderite to our rideshare business, move cars into leisure. We're now quite confident to move them back. That's going to have two effects. One, it's going to feed a higher RPU in natural demand that's being expressed among Uber and Lyft drivers. And equally, it's going to tighten supply relative to natural demand that exists. And we will see the premium pricing come back up. Of course, all of those observations really.
We went through a re underwrite to our rideshare business move cars into leisure wear now quite confident to move them back.
Stephen Scherr: By now you have likely seen our announcement on the appointment of Justin Kepi as our new chief operating officer effective November 15th. Justin joins us from carrier corporation where he let a multi billion dollar division. He's a strong leader with experience in both the private sector and the US military.
Can I have two effects, one is going to feed a higher RP U in natural demand, that's being expressed among Uber and lyft drivers and equally it's gonna tightened supply relative to natural demand that exists and we will see the premium pricing come back up.
Stephen Scherr: Justin is a graduate of West Point and Harvard Business School and I look forward to closely working with him as he leads the day-to-day execution of our business. With that, I will now turn to our results for the third quarter. Revenue in the quarter was 2.7 billion dollars representing the highest quarterly reported revenue in the company's history. Revenue grew 8% versus 1 year ago and 11% sequentially volume is measured by transaction days was strong up 16% versus Q3 of last year and up 9% sequentially.
Of course, all of those observations relate to the remediation of margin on the current portfolio.
Speaker 3: transcript
Speaker 3: the remediation of margin on the current portfolio. I think the second way to answer your question is on the forward.
The second way to answer your question is on the forward new buys year are going to come at lower a lower prices. We are better buyers at lower prices now we will pace ourselves to ensure both that the problems that are in front of us are solved and being solved and equally watch what demand looks like.
Speaker 3: transcript
Speaker 3: new buys here are going to come at lower prices. We are better buyers at lower prices. Now we'll pace ourselves to ensure both that the problems that are in front of us are solved and being solved and equally watch what demand looks like. But I can tell you we remain committed, as I said, to being a first mover. It's important to us. But now buying these cars, $25,000 or $35,000 are in that range.
Stephen Scherr: Ashley. Demand in the quarter was strong across our business, with leisure, corporate and ride share volumes all up year over year, demonstrating the continued strength of the traveling consumer. Of note, our ride share volume was up 50% year over year was sequential growth of 12%. In an industry perspective, market shares appeared stable in the quarter amidst relatively stable pricing among our major competitors. We believe that various inflationary factors will continue to support tighter fleets and more elevated rates versus those historically experienced in the industry, all consistent with our ROA focus.
But I can tell you we remain committed as I said to being a first mover, it's important to us, but now buying these cars twenty-five where $35000 or in that range, obviously make margins work work and equally will only improve as and to the extent that we resolve the damage in salvage.
Speaker 3: transcript
Speaker 3: Obviously, make margins work work and equally will only improve as into the extent that we resolve the damage and salvage and the RPU component, recognizing depreciation on the extended fleet or the existing fleet will remain fixed.
And the ERP you component recognizing depreciation on the extended fleet or the existing fleet will remain fixed and I think there you know the notion of being a first mover as I said is as compelling to US now as it was before there are learnings that are here and we know how to fix some of these cost initiatives the last.
Speaker 3: transcript
Speaker 3: And I think there, you know, the notion of being a first mover, as I said, is as compelling to us now as it was before. There are learnings that are here, and we know how to fix some of these cost initiatives.
Speaker 3: transcript
Speaker 3: The last thing I'll say just closing out on your question is that
I'll say just closing out on your question is that.
Speaker 3: transcript
Speaker 3: I think the one thing to take note of when you put a boundary around the EV cost issue, and you look at margin being several points or several hundred basis points higher, is that it does speak to the inherent strength of the core ice business. And that's reflective of pricing strategies we've taken around hurts and strategy we're developing around our value brand dollar and thrifty.
I think the one thing to take note of when you when you put a boundary around the E V cost issue and you look at margin being several points or several hundred basis points higher is that it does speak to the inherent strength of the core ice business.
Stephen Scherr: As we move through October, which is showing ongoing strength in leisure across North America, as well as Europe, we still maintain that year over year declines will moderate from here. In all, leisure bookings remain strong, inbound travel is increasing, and ride share is growing, and what we believe are the attractive economics to drivers of renting cars from Hertz. Given the focus on pricing, let me make one additional point on rate to help reconcile RPD being up 2% while large segments of our business were up higher as I will speak to in a moment.
And that's reflective of pricing strategies, we've taken around curt's and strategy, we're developing around our value brand dollar and thrifty.
Speaker 3: transcript
Speaker 3: And equally, I think it reflects the baseline demand of a relatively strong market that still is seeing need for our product.
And equally I think it reflects the baseline demand of a relatively strong market that still is seeing need for our product.
Speaker 5: transcript
Speaker 5: Okay, thanks for all the details to even super, super helpful. So, as a follow up and realizing this is this is probably imperfect question and a little bit. Theoretical as we look to next year, because you've talked about a lot of initiatives and a lot of things that went sideways this year that you're, you're working on. I mean, I guess if we, if we took some of the macro out of it.
Okay.
Stephen Scherr: There are customer channels in our business like leisure, which are subject to more dynamic market pricing. There are also channels like ride share and insurance replacement, where rate is more fixed or contractual in nature. Just focusing on pricing in our North American leisure business, the largest by transaction days, RPD in that channel was up more than 6% over the prior quarter, excluding the delutive impact of EVs. By comparison, RPD and our more fixed rate businesses in North America was roughly flat frequently, and therefore drove the system wide number lower to plus 2%.
Okay. Thanks for all the details Steven Super Super helpful. So as a follow up in realizing this is this is probably the perfect question in a little bit theoretical.
As we look to next year, because you've talked about a lot of initiatives and a lot of things that.
Went sideways this year that you are.
You're working on I mean, I guess, if we if we took some of the macro out of it and just said hey, you're going to have flat volume and flat RPE. What is there a level of offset you can quantify in terms of what you know.
Speaker 5: transcript
Speaker 5: and just said, hey, you're going to have, you know, flat volume and flat RRPD. What is there a level of offset you can quantify in terms of what, you know, what would it take to get EBITDA growth next year if you, you know, had a very small range of top line outcomes? Again, not not necessarily a super realistic question, but trying to get a sense for, you know, what can actually how much do some of these things that impacted you in 23 and some of the initiatives?
What would it take to get EBITDA growth next year. If you had had a very small range of topline outcomes again, not necessarily super realistic question I'm trying to get a sense for what.
Stephen Scherr: Let me reflect on the cost side of the equation. Our adjusted corporate EBITDA in Q3 was $359 million, reflecting a 13% margin. While this trend trailed our expectations, our performance still reflected strong demand, higher sequential RPD, a stable industry environment, and improving operating fundamentals across the company. Our direct operating expenses remained controlled in the quarter as they grew with transaction volume. On a unit basis, we achieved productivity gains across most categories of our DOE.
What can actually how much some of these things it impacted you in 'twenty three and some of the initiatives you're still rolling out to that you know at what does that add up to potentially in 'twenty four.
Speaker 5: transcript
Speaker 5: You're still rolling out. Can that, you know, at what does that add up to potentially?
Speaker 3: transcript
Speaker 3: Sure. Well, I don't think it's a theoretical question. I mean, it's a question that sits right in front of us and, and we are minded to execute to it. And I would say it's both on the revenue and the expense side. On the revenue side, you know, we're not waiting to start on the build of the dollar brand. And we're not waiting to continue to build and improve and benefit from strong growth in our rideshare business.
Sure well I.
I don't think it's a theoretical question I mean, it's a question that sits right in front of us and and we are minded to execute to it and I would say, it's both on the revenue and the expense side on the revenue side.
No we're not waiting to start on the build of the dollar brand and we're not waiting to continue to build and improve and benefit from strong growth in our rideshare business and and on the dollar side.
Stephen Scherr: The exception remained vehicle damage costs, particularly those on our EVs, which we are addressing in a very targeted way. Excluding net collision and damage costs in both periods, DOE per transaction day was down 10% year over year, which is consistent with our goals coming into 2023 and reflects our continued focus on our global expense space. We are beginning to benefit from our significant investment in field technology and resulting productivity, including digital check-in, telematics, and vehicle inventory tools, and from our work to contain S-GNA. We remained confident in our trajectory. We have made considerable progress in the improvement of our technology, migration of systems to the cloud, investment in talent, and better control of how we operate our fleet.
Speaker 3: transcript
Speaker 3: And on the dollar side, you know, as I mentioned, let's assume that there's no incremental share pickup. In other words, assume dollar is not a share grab. Just take it as relatively flat volume. The ability to take price up by offering out a better product such that we see people in greater strength coming to us.
As I mentioned, let's assume that there is no incremental share pick up. Another is assumed dollar is not a share grab just take it as relatively flat volume the ability to take price up by offering out a better product such that.
We see people in greater strength coming to us.
Speaker 3: transcript
Speaker 3: The ability to exercise price leverage on the back of a better product on a static book of demand is financially a creative to us.
The ability to exercise price leverage on the back of a better product on a static book of demand is financially accretive to us.
Speaker 3: transcript
Speaker 3: On the right-share side, we can pin you to see extraordinary growth, 50% growth since the beginning of the year.
On the rideshare side, we continue to see extraordinary growth 50% growth.
Speaker 3: transcript
Speaker 3: And I think this is only going to continue to grow because with time we move closer to deadlines in certain cities where in fact, this is going to be a requirement. On the cost.
Since the beginning of the year.
And I think this is only going to continue to grow because with time, we move closer to deadlines in certain cities where in fact this.
Stephen Scherr: In addition to improving our customer offering, nevertheless, we underperformed in Q3 relative to our expectations and must correct the issues that weighed on our results. To better understand these factors and provide additional context on the quarter, I want to talk briefly about each of our premium Hertz brand, our value brands, and our rideshare and electric vehicle strategies. Let me begin with Hertz. This was a bright spot in the quarter. As you know, we have been working hard to increase brand loyalty and recurring business for our premium Hertz brand.
This is gonna be come a requirement.
On the cost side again, let's not let EV mask progress being made on D. O E. D. O E was down 10% on a per day basis per transaction day basis year over year.
Speaker 3: transcript
Speaker 3: Let's not let EV mask progress being made on DOE. DOE was down 10% on a per day basis, per transaction day basis year over year.
Speaker 3: transcript
Speaker 3: That's not the end of the work that's going on. And our new CLO is going to come in and take this on full bore as we continue to drive meaningful cost reduction out of the business because technology will improve our ability to operate with efficiency.
That's not the end of the work that's going on and our New C. L. O is going to come in and take this on full bore as we continue to drive meaningful cost reduction out of the business because technology will improve our ability to operate with efficiency.
Stephen Scherr: We are driving initiatives to improve the customer experience from the shop and book aspects of our digital assets. It's the rental delivery in addition to building financially attractive partnerships across the travel industry. We are confident that these initiatives strengthen the brand and yield better financial outcomes for the company, including through pricing leverage, particularly in markets to demonstrate some price in elasticity. To this point, and as I referenced earlier, pricing for the Hertz Leisure brand led all other channels in the quarter.
Speaker 3: transcript
Speaker 3: And equally, we're going to look for efficiency in the context of taking post-down that relates to this EV issue around damage and collision.
And equally we're going to look for efficiency in the context of taking costs down that relates to this EV issue around damage and collision and alike and so again. Your question is not theoretical it's a work task that's right in front of US now that we're working on and again against a flat market as you characterized.
Speaker 6: transcript
Speaker 6: and the like. And so, again, your question is not theoretical. It's a work task that's right in front of us now that we're working on. And again, against a flat market, as you characterize, there are opportunities to take revenue up and there are opportunities to take expense down. And on the revenue side, it's not entirely reliant on growth in days. It's leveraging price based on a better product. Okay. Very good.
There are opportunities to take revenue up and there are opportunities to take expense down and on the revenue side, it's not entirely reliant on growth in days, it's leveraging price based on a better product.
Stephen Scherr: This is the product of a very purposeful strategy to identify specific markets by brand customer type and even car class where we see the opportunity to realize better pricing. We also continued in Q3 to grow our corporate and insurance replacement business revenues under the Hertz brand. As I noted, rates for these customer channels are knowingly diluted to headline RPD. However, given given better intra week utilization for corporate and longer length of keep on insurance replacement and therefore lower cost, they are each important to our total business mix.
Okay very helpful. Thanks, Thanks, Steven.
Thank you Chris.
One moment our next question.
Speaker 1: transcript
Speaker 1: Our next question comes from Ian Zafino with Oppenheimer. Your line is open. Hi, Grace.
Our next question comes from Ian Zaffino with Oppenheimer. Your line is open.
Hi, great. Thank you very much.
Speaker 7: transcript
Speaker 7: I just want to follow up maybe on that previous question and then I really a main question was, you know, the previous question can you maybe talk about
A follow up maybe on that previous question and then I ran.
Stephen Scherr: Turning next to our value brands, dollar and thrifty, your results validate our strategy. While we have enjoyed a pricing premium to several key competitors in the Hertz Leisure channel, we have continued to see a relative discount in our value brands. Our strategy to reinvigorate dollar thrifty aims to fix this. We are aggressively at work to deliver the service thought by value oriented customers to help us close the gap. Enhancements to our customer experience expected to develop throughout 2024 across our system, include include include improved shop and book on digital channels, advanced check-in, digital offering, evaluated services, and assigned cars with field agents ready to facilitate upgrades.
Our main question was pretty.
Previous question can you maybe talk about how much of the pollution or whatever you call it from Evs.
Speaker 7: transcript
Speaker 7: how much of the dilution, or whatever you want to call it, from EVs is specifically, I guess, related to Tesla versus non-Tesla. So, if you normalize, and as the fleet kind of normalizes, you know, throughout various EVs.
I guess related to passport versus non Tesla. So if you normalize and ethically kind of normalizes.
You know throughout various E. D's, we just naturally get a margin uplift from that diversification and then Peter I guess the great question was on the pricing side I guess, we're not tightening I think he said market shares were relatively stable.
Speaker 7: transcript
Speaker 7: We just naturally get a margin uplift from that diversification.
Speaker 7: transcript
Speaker 7: And then, I guess the main question was on the pricing side, I guess we're not pricing, I think you said, market shares were relatively stable. Can you maybe just talk about the environment, kind of the willingness of competitors to follow your lead when you try to take up price and what they're kind of generally thinking over.
Stable can you maybe just talk about the environment kind of the willingness of competitors to follow your lead when you try to take up price.
And what they're kind of generally thinking overall, thanks sure yeah sure. So.
Speaker 3: transcript
Speaker 3: Yeah, sure. So first on the EV question.
Stephen Scherr: These products were not sufficiently in evidence during the summer to yield the unit revenue results that we saw at Hertz, as our sequential rate increase for dollar was up only 3%. We believe as our initiatives mature dollar and thrifty will be better positioned to move closer to pricing parity with more established value brands in the market. We also expect margins for this channel to improve on the back of lower cost of rental delivery and less expensive vehicles. Finally, it is worth pointing out that improvement to the customer experience, which enables us to take rate up, even apps and share gain will alone improve financial performance.
Speaker 3: transcript
Speaker 3: Recognize that the total EV fleet is about 11% of the total fleet and Tesla's represent about 80% of that. And so there's quite a bit of the cost element that relates to the Teslas as opposed to others.
First on the EV question.
Recognize that the total EV fleet is about 11% of the total fleet and Tesla's represent about 80% of that and so there's quite a bit of the cost element that relates to the teslas as opposed to others.
Speaker 3: transcript
Speaker 3: And so, you know, our focus and our work with Tesla is to look at the performance of the car, so it's below the risk of incidents of damage.
And and so our focus and our work with Tesla is to look at the performance of the car so as to lower the risk of incidents of damage and were in very direct engagement with them on parts procurement and labor and the like so that's working.
Speaker 3: transcript
Speaker 3: And we're in very direct engagement with them on parts procurement and labor and the like. So that's working. I would say that over time, you know, to the extent we take on more GM electric vehicles, as an example, again, we'll be buying all of the forward EVs at an appreciably lower price point than where we bought the 80 percent of our fleet, which is Tesla.
I would say that over time.
To the extent, we take on more G. M electric vehicles as an example, again will be buying all of the forward Evs at an appreciably lower price point than where we bought the 80% of our fleet, which is Tesla. So that's obviously a benefit and I think that there are elements of those cars that will likely speak too low.
Stephen Scherr: Let me now turn to our right-year business and EV strategy, which are complimentary. Our right-year business is growing with year over year volume up 50%. The business is positioned well for further expansion as new markets open, including cities that are working to mandate the deployment of EVs and urban mobility, and those like New York City, which just recently announced that it is making more licenses specifically available to EVs for right-year use.
Speaker 3: transcript
Speaker 3: So that's obviously a benefit. And I think that there are elements of those cars that will likely speak to lower incidence of damage, but I think perhaps more importantly, you will speak to a lower cost of parts in labor. Remember, in the likes of GM and other...
Incidents of damage, but I think perhaps more importantly, he will speak to a lower cost of parts and labor remember.
In the likes of GM and other Oems, there's decades of establishment of a broad national parts supply network Theres, an aftermarket of parts that that is there that is less mature obviously in the context of Tesla and so I suspect as implied by your question that margins.
Speaker 3: transcript
Speaker 3: There's decades of establishment of a broad national parts supply network.
Stephen Scherr: Hertz is proving to be an affordable entry point for drivers and an available source of electric vehicles as mobility companies and their drivers adopt electrification. Rising fuel prices and attractive revenue incentives from shared mobility companies are creating opportunity for us in a customer channel where we continue to build a best in class offering. A recent progress is reassuring as earlier in 2023 and occasioned by higher incidents of damage among EV rideshare drivers, we took steps to moderate our rideshare growth and re-underwrite the rideshare driver base.
Speaker 3: transcript
Speaker 3: There's an aftermarket of parts that is there. That is less mature obviously in the context of Tesla. And so I suspect as implied by your question.
Speaker 3: transcript
Speaker 3: that margins will improve and this issue will improve as we look to diversify. But that's not to say that we don't see improvement happening just on our own workflow, both to reduce incident and equally, the way in which we incur the cost on this. So I think there's a natural progression of cost reduction, but I think there's work in front of us. We understand what it is and we're doing it to fix it. On the second part of your question,
Will improve and this issue will improve as we look to diversify but that's not to say that we don't see improvement happening just on our own workflow.
Both both to reduce reduce incident and equally you know.
The way in which we incur the cost on this so I think there's a natural progression.
Stephen Scherr: This meant purposely slowing the supply of EVs into rideshare and moving more electric vehicles into the leisure channel to facilitate their ongoing utilization. With hindsight, this left leisure overfleted with EVs. As a result, RPD for our electric vehicles in leisure drop, which contributed to the lower RPD performance, for the company in the quarter. As you would expect, we have been parsing the data on damage and actively remediating the causal. And during Q4, we are more confident in the quality of demand in rideshare buffeted by enhanced processes to better underwrite drivers and to improve the mix of more experienced higher length of keep drivers.
Of cost reduction, but I think there's work in front of US we understand what it is and we're doing it to fix it.
On the second part of your question around pricing look we are dramatically changing the way in which hurts US a brand behaves I mean for many many years Hertz was known as a brand that sort of played to the low end of price, meaning we played hired a volume drove price down to find that volume and produce revenue on that.
Speaker 3: transcript
Speaker 3: Look, we're dramatically changing the way in which Hertz as a brand behaves. I mean, for many, many years, Hertz was known as a brand that sort of played to the low end of price, meaning we played higher to volume, drove price down to find that volume and produce revenue on that basis. It is undeniably the
Basis it is.
And I believe the inverse now we have taken brands and disassembled them. We look at markets. We look at cars, we look at customer sets and we broke down for example, hertz into decile, we clip the lower decile not willing to sort of rent at that particular price and then we look to find markets as <unk>.
Speaker 3: transcript
Speaker 3: We have taken brands and disassembled them. We look at markets. We look at cars. We look at customer sets.
Speaker 3: transcript
Speaker 3: And we broke down, for example, hurts into desiles. We clipped the lower desile, not willing to rent at that particular price. And then we looked to find markets, as I said in my prepare remarks, that demonstrate price in elasticity. And as I said, I think it was at the JP Morgan conference quite publicly in the summer. We were at that point orchestrating a price increase on hurt.
Stephen Scherr: This is enabling us to return confidently to a strategy of growing the level of our existing electric fleet that is allocated to this business. Over the next several quarters, we expect to move an increasing number of our current electric vehicles into the rideshare fleet, supplementing the several thousand EV onrens made in just the last several months. As we pull these cars from leisure, we are simultaneously tightening the EV supply in that channel and more accurately matching the fleet to demand and effect seeking to reverse the issue that pressured the quarter and adhering to our ROA mentality. We are also continuing to take steps to rectify the issue of elevated EV damage costs broadly, which we have thought would come down more quickly than they have.
I said in my prepared remarks that demonstrate price inelasticity and as I said I think it was at the JP Morgan conference quite publicly in the summer we were at that point orchestrating a price increase on hurts and we were able to do that in a way where we saw very little in the way of degradation of volume, but <unk>.
Speaker 3: transcript
Speaker 3: And we were able to do that in a way where we saw very little in the way of degradation of volume, but bringing price up. And remember, price runs about 80% to the EBITDA line. So you're more than willing to sort of sacrifice volume where you can take price up, not to the extreme, but within the boundaries of reason. And we did that.
<unk> price up and remember price runs about 80% to the EBITDA line. So you are more than willing to sort of sacrifice volume, where you can take price up not to the extreme but within the boundaries of reason and we did that and we did see some followership and we continued to show price leadership.
Speaker 3: transcript
Speaker 3: And we did see some follow ship and we continue to show price leadership in and throughout markets where we can we can make that trade and we will make that trade all day. The circumstance in dollar, as I mentioned, is.
Stephen Scherr: Let me share a bit more context on the damage equation. First, while conventional maintenance on electric vehicles remained lower relative to comparable ice vehicles in Q3, higher collision and damage repairs on EVs continued to weigh on our results and negatively impacted EBITDA. For context, collision and damage repairs on an EV can often run about twice that associated with a comparable combustion engine vehicle. Second, where a car is salvaged, we must crystallize at once any difference between our carrying value and the market value of that car.
In and throughout markets, where we can we can make that trade and we will make that trade all day. The circumstance in dollar as I mentioned is a different one we're reinvigorating that brand and we're doing that for a reason we're doing it because of better product will give us greater pricing leverage and our hope and expectation is that we're on a journey.
Speaker 3: transcript
Speaker 3: We're reinvigorating that brand and we're doing that for a reason. We're doing it because a better product will give us greater pricing leverage. And our hope and expectation is that we're on a journey to get to better pricing parity to our competitors. And we will get there. You know, these are people that rent once or twice in an 18 month period. They are skewed heavily toward price.
To get to better pricing parity to our competitors and we will get there.
These are people that rent once or twice and an 18 months period. They are skewed heavily toward price, but not if the experience is going to be at a meaningful discount and so bringing that experience up will give us pricing pressure and again as I said.
Speaker 3: transcript
Speaker 3: But not if the experience is going to be at a meaningful discount. And so bringing that experience up will give us pricing pressure. And again, as I said,
Stephen Scherr: The MSRP declines in EVs over the course of 2023, driven primarily by Tesla, have driven the fair market value of our EVs lower as compared to last year, such that a salvage creates a larger loss and therefore greater burden. By contrast, market values in portions of our fleet last year exceeded carrying values, resulting in some salvages producing gains. While this had a negative effect in Q3, it is of course a VIN specific phenomenon and should therefore not be thought of as a permanent effect on results. Given these headwinds, we are actioning collision and damage with urgency, with particular focus on the aspects we can more readily impact, like incidents, parts procurement and reimbursement.
Speaker 3: transcript
Speaker 3: The whole notion around dollar doesn't depend on share and gaining days. It depends on taking a static number of days and bringing price up. And we're quite confident in our ability to do that.
The whole notion around dollar doesn't depend on share and gaining days it depends on taking a static number of days and bringing price up and we're quite confident in our ability to do that.
Speaker 7: transcript
Speaker 7: Okay, thanks. If I could just squeeze in one quick one for Alex, you know, he may just talk about.
Yes.
Okay, Thanks, and if I could just squeeze in one quick one for Alex.
Can you maybe just talk about.
Speaker 7: transcript
Speaker 7: Some of the productivity initiatives you guys have in place now and how are the benefits you've obtained so far.
Some of the productivity initiatives you guys have in place now and kind of what are the benefits you've seen so far.
Speaker 4: transcript
Speaker 4: And thanks for the question. When you look at DOE per transaction day, the headwinds on collision and damages are masking the underlying progress. We've been making on our core cost initiative.
Sure and thanks for the question when you look at the OE per transaction day, the headwinds on collision and damages are masking the underlying progress we've been making on our core cost initiatives and as we mentioned in our prepared remarks, we've achieved over $100 million daily savings on a year over year basis through these productivity improvements.
Stephen Scherr: Smith. We have activated a comprehensive end-to-end damage program from underwriting to collections. We're also developing additional easy-to-use educational tools on EV functionality, but perhaps most importantly, we are working with the relevant OEMs to improve outcomes based on vehicle performance. Let me try to put some dimension to the issue. Taking account of impact on depreciation, collision and damage, and RPU relating to our EV fleet, we estimate that had our fleet into three been similarly sized, but comprised solely of ice vehicles, our EBITDA margin would have been several margin points higher.
Speaker 4: transcript
Speaker 4: And as we mentioned in our prepared remarks, we've achieved over 100 million of DOE savings on a year-over-year basis through these productivity improvements.
Speaker 4: transcript
Speaker 4: About half of that is related to labor productivity, particularly in the field, and about half is in our fleet-related cost savings, like maintenance, fuel, and transportation costs.
About half of that is related to labor productivity, particularly particularly in the field and about half is in our fleet related cost savings like maintenance fuel and transportation costs, so double clicking into that on field labor productivity, we reduced our own staffing overtime and we've also cut back on our third party labor.
Speaker 4: transcript
Speaker 4: So double clicking into that on field labor productivity, we reduced our own staffing over time, and we've also cut back on our third-party labor.
Speaker 4: transcript
Speaker 4: And on the theme of third-party labor, we've also reduced it as it relates to our maintenance and vehicle documentation. So by bringing more of this work in-house, we're better able to control our own costs and achieve our productivity objectives. On fuel, we're using enhanced telematics to improve our accuracy. And on transportation costs, we've employed advanced fleet management tools to streamline our fleet movements and reduce our transportation costs.
And on the theme of third party labor, we've also reduce debt as it relates to our maintenance and vehicle documentation. So by bringing more of this work in house, and we're better able to control our own costs and achieve our productivity objectives.
Stephen Scherr: This frames our challenge in as much as it reflects on the stability of our underlying business. To that end, we are pulling all controllable levers to bring the incremental cost down. We nonetheless remain committed to our long-term strategy to electrify the fleet. We believe in the value of being a first mover. Electric vehicles open the door to our growing presence in rideshare, where electrification is a fast approaching requirement, not merely an option, in a channel where we are uniquely positioned.
People, who are using enhanced telematics to improve our accuracy and on transportation costs. We've employed advanced fleet management tools to streamline our fleet movements and reduce our transportation cost. So we're encouraged by our progress so far but there's more work to do here as Stephen mentioned and we're looking forward to Justin Cafe.
Speaker 7: transcript
Speaker 7: So we're encouraged by our progress so far, but there's more work to do here as Stephen mentioned. And we're looking forward to Justin Kepey, joining the team of our new COO and driving these initiatives even further. All right, perfect. Thanks for the color. Appreciate this.
Joining the team as our new C O L and driving these initiatives even further.
Stephen Scherr: We benefit from our access to partnerships with other players around electrification, or open to an early mover, including those with interest in charging, electric fleet management, and autonomous vehicles. There's also the case of corporate and government demand, which is manifesting quickly as these customers seek to satisfy their own sustainability objectives. Early engagement here is sticky. And as EV ownership grows, we expect rental demand to grow in tandem. By gaining early competitive knowledge on how to manage a profitable EV rental fleet, we believe we are gaining value and positioning hurts to ramp efficiently and confidently.
Okay.
Alright, perfect. Thanks for the color I appreciate that guys.
Thank you.
One moment for our next question.
Speaker 8: transcript
Speaker 8: Our next question comes from John Healy with North Coast Research. Your line is open.
Our next question comes from John Healy with Northcoast Research Your line is open.
John.
John Please make sure your line is on mute.
One moment for our next question.
Stephen Scherr: And finally, the capabilities to manage an EV fleet are not learned overnight and are differentiating. The cadence of repair and maintenance is different as is charging, demand generation, rental fulfillment, and fleet management. Make no mistake, we are developing a clear understanding of the key levers needed to deliver a more profitable EV rental fleet in a world that is moving toward electrification. Transitions of this magnitude are not easy, and there are important factors, including charging infrastructure, the pace of OEM production, and the growth of the EV aftermarket that we simply cannot control.
Speaker 1: transcript
Speaker 1: Our next question comes from Stephanie Moore with Jeffries. Your line is...
Our next question comes from Stephanie more with Jefferies. Your line is open.
Speaker 9: transcript
Speaker 9: Hi, this is Hans Hoffman on First Stephanie.
Hi, This is Han Hoffman on for Stephanie.
Speaker 9: transcript
Speaker 9: I was just curious, that moving more caspos into your leisure say when it gives you any sort of RPB bump in the quarter. And if so, could you maybe quantify that?
Just curious did all moving.
More teslas into your leisure segment, and give you any sort of RP and be involved in a quarter and if so could you maybe quantify that.
Speaker 9: transcript
Speaker 9: And then I was also just kind of curious, you know, I guess if you think that, you know, over time that, you know, Tesla's can kind of maintain their, you know, RPD premium, you know, kind of given these sort of discounts or if there's, you know, maybe some sort of novelty factor that's kind of, you know, playing into the RPD premium there.
And that was also just kind of curious.
I guess do you think that you know over time that tesla's can kind of maintain their RP D premium.
Stephen Scherr: Nonetheless, there's an undeniable transformation underway. The share of new electric vehicles fails in the US is growing, and studies of current EV ownership, evidence lower incidence of damage and collision than for ICE vehicles, not higher as we are experiencing. We believe these trends will converge.
Kind of given the sort of discounts or if there's some sort of a novelty factor that's kind of playing into the RPG premium there.
Speaker 3: transcript
Speaker 3: Sure, thanks for the question. So, on the electric vehicles in Leisure...
Sure. Thanks for the question so on on on the electric vehicles in leisure I think on the forward. Our view is that we need to bring supply.
Speaker 3: transcript
Speaker 3: I think on the forward, our view is that we need to bring supply in line with natural demand that's being expressed. And as we've always said, you know, we want to bring, you know, our fleet inside the demand curve. That same holds true in terms of electric vehicles in leisure.
Stephen Scherr: In some, our objective is straightforward. We want to offer our customers the widest possible choice of vehicle makes and models, whether gas powered or electric, so that they can travel the way that best suits their needs and preferences. We know the challenges at hand and are working to remedy that which we can. And we'll pace ourselves accordingly with an expectation that our inflating of EVs will be slower than our prior expectations, but we will be stronger for having begun the journey when we did.
In line with natural demand, that's being expressed and as we've always said.
We want to bring you know.
Our fleet inside the demand curve that same holds true in terms of electric vehicles in leisure and there are number of sort of parts to the demand equation.
Speaker 3: transcript
Speaker 3: And there are a number of sort of, you know, parts to the demand equation, you know, on the on the rack side, leisure, of course, being one where people have a natural desire and interest in driving an EV.
The on the rack side leisure of course being one.
Our people have a natural desire and interest in driving an E D.
Stephen Scherr: Looking past our results in Q3, I want to close my remarks with a few comments about our expectations on the floor.
Speaker 3: transcript
Speaker 3: Equally, you know, our fleet becomes a very interesting proposition around test drive for a lot of these cars for people who are being introduced to this
Equally our fleet becomes a very interesting proposition around test drive for a lot of these cars for people who are being introduced to this.
Stephen Scherr: twenty twenty three has become a transitional year for the company where we continue to fix and improve the foundational elements of the business from basic technology and field capability through to product offerings and brand strengthening in twenty twenty four we will focus on continuing to execute on our revenue and cost initiatives with an expectation that they will contribute to our financial performance throughout the year and into twenty twenty five as they begin to mature as I have noted before and as we present on page ten of our accompanying material the initiatives and focus include both operational projects as well as newer business lines namely harvesting our meaningful investment in IT both in terms of reduce costs and improve revenue management all with an eye to increase the margin on our standing businesses continuing to elevate our operational efficiency on a global basis through improve productivity and fixed cost leverage including Europe where we continue to rationalize our footprint expanding on our vehicle sales results through improved retail operations and our partnership with Carvana and other similar outlets learning from our initial engagements with EVs to reduce expenses and improve the margin profile across the whole of the business improving the competitiveness of our value brands dollar and thrifty to enable our business to close the price and gap to our more established competitors and finally growing our right to make sure business taken together these initiatives represent an opportunity to materially enhance our financial performance and add in the range of five hundred million dollars in incremental EBITDA at maturity we also believe these initiatives will render the business more durable to withstand macro pressures in all we are setting a course for the company to improve with a new COO set to take a seat we look forward to the opportunity to host an investor day in the quarters ahead to provide greater detail around our initiatives and their expected financial contribution I continue to believe that the business opportunity ahead of us is significant and achievable of course in the end we will be measured on the delivery of these initiatives and not their mere mention that said the work has begun and much of the capital has been invested it is on to execute let me now turn to Alex for more detail on our quarterly results.
Speaker 3: transcript
Speaker 3: But equally, we see opportunity for EV deployment and rack around insurance replacement, around corporate and government, all under the Hertz brand. And in those cases, these are Tesla drivers who have an insurance replacement and will want to take on another EV as part of that insurance replacement product.
But equally we see opportunity for EV deployment in rack around insurance replacement around corporate and government all under the Hertz brand and in those cases. These are Tesla drivers, who have an insurance replacement and will want to take on another E V as part of that insurance for.
Speaker 3: transcript
Speaker 3: And we see growth in corporate and in government, where in both instances, there's a desire to pick up on sustainability objectives that they have. And so there are a number of pockets of demand that will drive in the rack side. And we need to maintain the supply that's inside that to attain kind of premium RPU.
Placement product and we see growth in corporate and in government, where in both instances, there's a desire to pick up on sustainability objectives that they have and so there are a number of pockets of demand that will drive in the rack side and we need to maintain the supply that's inside that too.
Chain to attain kind of premium RPE U.
Speaker 3: transcript
Speaker 3: I would say equally and maybe more impactfully, you know, the the electric vehicle in our ride share business has an interesting and different and very strong level of demand. Again, that demand is on the part of the driver.
I would say equally and maybe more impactful way.
The the electric vehicle in a rideshare business has an interesting and different and very strong level of demand again that demand is on the part of the driver who wants entry into an electric vehicle because the net economics to that driver both by virtue of renting a car from hertz around fuel.
Speaker 3: transcript
Speaker 3: who wants entry into an electric vehicle because the net economics to that driver, both by virtue of renting a car from Hertz.
Speaker 3: transcript
Speaker 3: around fuel and around incentives that are given to them by the rideshare or mobility cars companies.
And around incentives that are given to them by the rideshare on mobility companies yields a better economic outcome from them or for them and to the extent that these cars are still expensive new and theres been no real used market that should come about you know we've become the natural and most economic entry point.
Speaker 3: transcript
Speaker 3: yields a better economic outcome for them.
Speaker 3: transcript
Speaker 3: To the extent that these cars are still expensive, new, and there's been no real used market that's had come about, you know, we become the natural and most economic entry point for those drivers to come in, and the benefit is proving out. And so we're seeing meaningful growth and demand in the right-chair side.
For those drivers to come in and the benefit is proving out and so we're seeing meaningful growth in demand in the rideshare side, and we're equally seeing longer length of keep and we've been designing incentives and programs and pricing schemes in tandem with Uber to sort of feed that that is get more experienced drivers in.
Speaker 3: transcript
Speaker 3: And we're equally seeing longer length of keep. And we've been designing incentives and programs and pricing schemes in tandem with Uber to sort of feed that. That is get more experienced drivers in with longer length of keep.
Speaker 3: transcript
Speaker 3: That obviously drives down damage costs, but equally it drives down cost overall, because remember, length of keep in that business is key to bringing the ultimate cost down and the margin of that rental high.
With a longer length of keep that obviously drives down damage cost, but equally it drives down cost overall, because remember length of keep in that business is key to bringing the ultimate costs down and the margin of that rental hi.
Speaker 9: transcript
Speaker 9: Got it, that's helpful. Sure. And I guess just kind of wanted to touch on, you know, capital allocation decision a bit. You know, I think you guys have close to, you know, a billion sort of left in your, you know, buy back authorization. Just curious how you guys are thinking about buy back in Q4 and then into 2024 as well. Just kind of carry it to, you know, higher fleet owning costs and then potentially mobile residuals could be someone of like a limiting factor here.
Got it that's helpful.
Sure and then I guess, just kind of wanted to touch on capital allocation decisions a bit.
You guys have close to <unk>.
1 billion sort of left in your buyback authorization. Just curious how you guys are thinking about buyback in Q4, and then into 2024 is a while just kind of curious if you know higher funding costs and then you'll potentially lower residuals can be somewhat of like a limiting factor here.
Alexandra Brooks: Thank you Stephen and good morning everyone as was no good revenue of 2.7 billion dollars demonstrated growth of 8% versus 1 year ago and 11% sequentially to give you color on the segments is reflected year over year increases of 6% in the America segment and 17% in our international segment. Volume was up substantially year over year in both segments as well as sequentially pricing also grew sequentially up 2% in the Americas and 3% in international although down year over year 8% in America and 6% in international as compared to exceptionally strong rates in Q3 2022.
Speaker 3: transcript
Speaker 3: Well, look, I would say that there's no departure from what we have fed repeatedly in terms of priority, which is to invest in fleet and non-fleet in terms of building the business, and then looking at buyback as an opportunity. It's obviously an attractive opportunity given where the stock price has moved, but we take all three of those in tandem and make a decision on rational deployment of capital against both the near-term and short-term value of that investment.
Well look I would say that Theres no departure from what we have said repeatedly in terms of priority, which is to invest in fleet and non fleet in terms of building the business and then looking at buyback as an opportunity. It's obviously an attractive opportunity given where the stock price has moved but we take all three of those intent.
And make you know make a decision on rational deployment of capital against both the near term and short term value of that investment.
Okay got it that's helpful. Thanks sure.
Alexandra Brooks: Our average global fleet size was 590,000 vehicles and your utilization of our fleet remained high at 83% contributing to global monthly revenue per unit for the quarter of 1,596 up 5% sequentially. Q3 utilization in the Americas was 84%, up 320 basis points for the year over year, and up 160 basis points sequentially. International utilization in Q3 was 80%, up 330 basis points year over year, and 180 basis points sequentially, reflecting continued strength and demand.
Speaker 1: transcript
Speaker 1: One moment for our next question.
One moment for our next question.
Speaker 8: transcript
Speaker 1: Our next question comes from John Healy with North Coast Research. Your line is open.
Our next question comes from John Healy with Northcoast Research Your line is open.
John Please make sure your line is not muted.
One moment for our next question.
Alexandra Brooks: Strong utilization resulted in healthy RPU of $1,636 in the Americas, and 1,448 in international. Net depreciation per unit in Q3 was $282 per month within the range guided on our last call. As Stephen noted, adjusted corporate EBITDA was $359 million in Q3, a margin of 13%. I would note the SGNA at $209 million for the quarter is within the outlook provided on our last call. As noted earlier, DOE per transaction day continued to reflect elevated collision and damage, mitigated by various cost discipline and productivity initiatives.
Speaker 8: transcript
Speaker 1: Next question comes from Ryan Brinkman with J.P. Morgan. Your line is open. Hi. Thanks for taking my question.
Our next question comes from Ryan Brinkman with Jpmorgan. Your line is open.
Hi, Thanks for taking my question I thought to ask on Evs also I appreciate the comments about EBITDA margin in the quarter pro forma for a purely <unk>.
Speaker 7: transcript
Speaker 7: EVs also, I appreciate the comments about EBITDA margin, the Quater Pro form up for a purely ICE versus blended portfolio. Have you maybe kept like a running tally of all of the tailwinds to EBITDA since the start of purchasing EV strategy in the fall of 2021, such as
Versus blended portfolio have you may be kept up or like a running tally of all of the tailwind to EBITDA since the startup of Hercules EV strategy in the fall of 2021 to just higher revenue per day, which maybe you didnt manifest itself as much this quarter.
Speaker 7: transcript
Speaker 7: Higher revenue per day, which maybe didn't manifest itself as much this quarter.
Speaker 7: transcript
Speaker 7: you know lower-repean maintenance costs and
Routine maintenance cost and possibly even higher transaction days, although I'm not sure. How you can measure that with certainty, but then also the tailwind to EBITDA like little higher collision damage repair costs that you cited in <unk>. But then also of course, you know the higher depreciation, resulting from the Tesla and other EV.
Speaker 7: transcript
Speaker 7: Possibly even higher transaction days, although I'm not sure how you could measure that with certainty, but then also the tailwinds to EBITDA, like the higher collision damage repair costs that you cited in 3Q, but then also, of course, you know, the higher depreciation resulting from the Tesla and other EV automaker price cuts impacting residuals.
Alexandra Brooks: As we noted, excluding net collision and damage costs in both periods, DOE per transaction day decreased by approximately 10% year over year for Q3, largely driven by our efforts to improve field personnel productivity and reduce fleet related costs like maintenance, transportation, fuel, and facilities.
Automaker price cuts impacting residuals.
Speaker 7: transcript
Speaker 7: Do you have that net number? And then is there like a targeted date by which ED portfolio that transition might turn into a positive, EBITDA contributor relative to the ice portfolio when it would have similar or higher margins, et cetera?
You have that net number and then is there like a targeted date by which the EV portfolio that transition might turning to a positive EBITDA contributor relative to the ice portfolio or when it would have similar or higher margins et cetera.
Alexandra Brooks: Turning to our capital structure and liquidity. With respect to our balance sheet, net corporate debt at the end of the quarter was $2.3 billion. Net corporate leverage per Q3 was 1.9 times, modestly above our target of 1.5 times. At September 30th, our available liquidity was $1.7 billion, which includes approximately $600 million of unrestricted cash. During the quarter, we issued $1 billion of 6th rate rental car asset back notes under the US ABS facility, with a combined average interest rate of approximately 6.5%.
Speaker 3: transcript
Speaker 3: Well, let me start off by saying it is a positive contributor to EBITDA. It's just proving to be not as positive, given some of these near term cost challenges that we both understand and are addressing straight up. And so it's important to sort of understand it that way. I think the way I would try to answer your question is that.
Well, let me start off by saying it is a positive contributor to EBITDA, it's just proving to be not as positive given some of these near term cost challenges that we both understand and are addressing straight up and so.
It's important to sort of understand it that way I think the way I would try to answer your question is that <unk>.
Speaker 3: transcript
Speaker 3: Revenue production as a function of both price stability and demand for product I think is clear, and that's being driven across the whole of our fleet. And remember, we're offering electric vehicles out to our customers because they want them, meaning we're offering the widest mix of vehicles to meet the needs and desires of our customer set.
Our revenue production as a function of both price stability and demand for product I think is clear and thats being driven across the whole of our fleet and remember we're offering electric vehicles out to our customers because they want them, meaning we're offering the widest mix of vehicles to meet the needs and desires of.
Alexandra Brooks: $500 million of these notes mature in 2027 and $500 million mature in 2029. We also extended the maturity on the European ABS to March 2026, along with an upside of $100 million euros. The blended rate in our US ABS facility remains at approximately 4% and carries rate caps as required under the facility. At September 30, we had capacity under our ABS of $2.1 billion globally and our vehicle debt portfolio was approximately 70% 6th rate, which serves to mitigate the impact of a rising rate environment.
Speaker 3: transcript
Speaker 3: I'd also say that the offering of EVs as a product is an entry point into a ride chair.
<unk> of our customer said I'd also say that the offering of Evs as a product is an entry point into a rideshare business that would exist purely with ice. So don't misunderstand me, but I think as accelerated by virtue of the offer of electric vehicles and they are growing quite considerably.
Speaker 3: transcript
Speaker 3: that would exist purely with ICE. So don't misunderstand me, but I think is accelerated by virtue of the offer of electric vehicles. And they are growing quite considerably inside the fleet, you know, by an order of about 50% in growth in EV utilization in rideshare.
Inside the fleet.
By an order of about 50% in growth in EV utilization in rideshare and I think in response to the last question. It's clear that there are better economics that get even better just given where fuel costs and other costs sort of go for ultimate drivers. So part of what you see in the revenue is a tailwind it is.
Speaker 3: transcript
Speaker 3: And I think in response to the last question, it's clear that there are better economics that get even better just given where fuel costs and other costs sort of go for ultimate drivers. So part of what you see in the revenue.
Alexandra Brooks: We also maintained sufficient equity cushion in our ABS at quarter end. That said, with higher potential input costs on vehicles, including the risk of higher interest rate expense, we will continue to remain disciplined on fleet size and believe the broader environment for fleet will be disciplined as well. Overall, we continue to maintain a well structured debt maturity ladder, with no material corporate debt maturity until 2026.
Speaker 3: transcript
Speaker 3: is a tailwind. It is a benefit of the offering of the EV product. And so there is a contribution to EBITDA that's being made.
A benefit of the offering of the EV product and so there is a contribution to EBITDA, that's being made the reason to call out.
Speaker 3: transcript
Speaker 3: The reason to call out the several points of margin degradation occasioned by this is to really dimensionalize the effect of this. It is not a pervasive issue.
Several points of margin degradation occasion by this is to really dimensionalize. The effect of this it is not a pervasive issue baseline costs in terms of D. O E. As Alex noted came down 10% year over year, and so our ability to address and fix the cost.
Speaker 3: transcript
Speaker 3: baseline costs in terms of DOE, as Alex noted, came down 10% year over year. And so our ability to address and fix the cost equation.
Alexandra Brooks: Turning to our cash flow and capital allocation. For the third quarter, adjusted free cash flow was $313 million. Adjusted operating cash flow was $250 million, with fleet CapEx as an inflow of $124 million. On the back of the start of our seasonal deflegging. Nonsuit CapEx came in at $26 million. Lastly, in the quarter, we repurchased $50 million of our comments doc, bringing year-to-date repurchases to $250 million.
Speaker 3: transcript
Speaker 3: where I think the revenue equation is more in focus in terms of how to deploy the EVs. I think you'll start to see this reflect better in ultimate EBITDA production around the EV, but equally across the whole of the fleet. If that answers the question you were putting to.
Equation, where I think the revenue equation is more in focus in terms of how to deploy the evs I think you'll start to see this you know reflect better in ultimate EBITDA production around the EV, but equally across the whole of the fleet. If that answers. The question. You were you were putting to us yes.
Speaker 7: transcript
Speaker 7: Yeah, that is helpful. Thanks. I just maybe as a follow up to it, you know, beyond addressing the repair cost issue, are there other changes you might be contemplating with regard to the EV strategy, such as maybe pivoting away from earlier EV as a percent of fleet targets? You know, over the last week, GM, for example, has.
That is helpful. Thanks, and just maybe as a follow up to it beyond addressing the repair cost issue are there other changes you might be contemplating with regard to the EV strategy, such as maybe pivoting away from earlier <unk> as a percent of fleet targets you know over the last week GM. For example has pulled away from some of its EV sales and capacity expansion.
Alexandra Brooks: Finally, let me give some color around our forward-looking expectations. Looking to Q4, we anticipate our revenue to move in line with historical seasonality as reflected in both RPD and transaction days. We expect depreciation to key off the market and to fall within a range of $280 to $300 per unit with variability to be occasioned by volatility and residual values, which could alter growth and net depreciation, and which may cause us to adjust our fleet plans accordingly through the end of the year.
Speaker 7: transcript
Speaker 7: Pulled away from some of its EV cells and capacity expansion target in light of changing demand in order to shore up.
Mansion targets in light of changing demands in order to shore up or be able to reiterate per unit profitability targets I heard you say youre now a buyer at lower prices you know of the Tesla vehicles, but how are you thinking about you know and like.
Speaker 7: transcript
Speaker 7: or be able to reiterate per unit EV profitability targets. I heard you say you're now a buyer at lower prices, you know, of the Tesla vehicles, but how are you thinking about, you know, things are changing. You know, like Elon Musk comments on some of the recent Tesla earnings calls this year where he's spoken about
Things are changing.
Alexandra Brooks: In closing, let me reiterate the strength of our core act business, especially as it relates to the premium Hertz brand. We believe there is substantial upside opportunity to grow margins and cash flows as we work through the EV headwinds, reach the end of our elevated technology expenditure, and continue to optimize our value brands and European operations. We continue to expect our growth initiatives to meaningfully contribute to both the top and bottom lines.
Must comments on some of the recent Tesla earnings calls this year, where he has spoken about.
Speaker 7: transcript
Speaker 7: being willing to potentially, you know, continue to lower prices on new vehicles, all the way, he said, down to where they would make a 0% margin at the time of new vehicle sale, because he's hoping to make it up on the back end by monetizing a larger installed base to sell aftermarket RoboTaxi software and other services into. So just curious how that might enter into your calculus if you're still comfortable buying Teslas, even at lower prices, given that automaker's mindset with regard to new vehicle pricing strategy going forward.
Being willing to potentially continue to lower prices on new vehicles, all the way he sat down to where they would make a zero percent margin at the time of new vehicle sales because he's hoping to make it up on the backend by monetizing a larger installed base to sell aftermarket robo taxi software and other services into so just curious how that might enter into your.
Operator: With that, let's open the call for Q&A. We will now open the line for questions. Please limit your questions to one question per speaker and one follow-up if needed. To ask a question, please dial star 1-1 on your telephone. If you wish to cancel your question, dial star 1-1 again. One moment for our first question.
If youre still comfortable buying Tesla, even at lower prices given that automakers mindset with regard to new vehicle pricing strategy going forward.
Speaker 3: transcript
Speaker 3: Well, let me just say at the start, there's no world in which we're going to buy Tesla's to achieve a zero EBIT-DOM margin. So that may be a strategy, you know, among a select number of OEMs, but it's not ours. We're going to hold every purchase to an ROA threshold where we're quite confident that the EBIT-DOM margin to be generated on that car will be positive and will be attractive. So let me just be very clear about that.
Well, let me just say at the start there's no world in which we're going to buy Tesla is to achieve zero EBITDA margin. So that may be a strategy.
A select number of Oems, but its not ours, we're going to hold every purchase two in a row, a threshold, where we're quite confident that the EBITDA margin to be generated on that car will be positive and will be attractive. So let me just be very clear about that.
Chris Woronka: Our first question comes from Chris Rwanko with Deutsche Bank. Your line is open. Hey, good morning everyone. Thanks for taking our questions today. Hey Chris. Steven, I think you said that your margin for the quarter is around 13 percent, but if you normalized your business for all the ICE vehicles, it would have been several basis points, several hundred basis points higher. I would assume that you would buy EVs if you thought it would be a creative to margin.
Speaker 3: transcript
Speaker 3: The comment that I made about being a better buyer, for those cars that meet that threshold, we are by definition a better buyer at lower prices than to be a better buyer at higher prices. So price decline will benefit us in the context of forward purchases.
Comment that I made about being a better buyer for those cars that meet that threshold. We are by definition, a better buyer at lower prices than to be a better buyer at higher prices. So price decline will benefit us in the context of forward purchases.
Speaker 3: transcript
Speaker 3: I think it's also important to say that I'm not out to achieve a fixed percentage of our fleet being electric by date and time, meaning much as we had initially targeted to get to 25% of our fleet being electric by the end of 2024. I've said this before, and I'll just repeat it here. That's not.
I think it's also important to say that I'm not out to achieve a fixed percentage of our fleet being electric by date and time, meaning much as we had initially targeted to get to 25% of our fleet being electric by the end of 'twenty 'twenty four.
Chris Woronka: You are suggesting that the economics of the EVs will improve over time, but how do you get there? What composition of EVs do you need to make that margin come true? I guess why are the economics of EVs improving over time? Sure. Thanks for the question, Chris. You're right. Our reported margin was 13 percent. As I referenced, if you put boundary around the POST challenges associated with EVs, it would have been several points higher, several hundred basis points higher.
I've said this before and I'll just repeat it here that's not hard in stone, meaning we're going to continue to grow our fleet. We believe in them and the first mover advantage, we're going to hold ourselves out to a very hard screen on EBITDA margin and return and so we're not a buyer for the sake of being a buyer but.
Speaker 3: transcript
Speaker 3: We're going to continue to grow our fleet. We believe in the first mover advantage. We're going to hold ourselves out to a very hard screen on EBITDA margin and return. And so we're not a buyer for the sake of being a buyer.
Speaker 3: transcript
Speaker 3: But, you know, we will continue to grow. I mean, as I said, the first mover edge here, I believe is real. And I think there's no technology change that has happened in the world that operates on a straight line without some sort of challenges that are presented. But I think in the end, it's our ticket to ride share. It's our access to partners.
You know we will.
<unk> to grow I mean, as I said, the first mover edge here I believe is real and I think there's no technology change that has happened in the world that operates on a straight line without some sort of challenges that are presented but I think in the end, it's our ticket to ride share. It's our access to partners. We're feeding demand that's grew.
Chris Woronka: I would say on the EVs and margin, remember none of this escapes the regimen of subjecting any asset to an ROA analysis and ensuring that the forward returns are positive in any asset that we bring in. Equally, recall that when we first underwrote the margin potential around EVs, these were priced materially higher than where we are right now. On the standing fleet, there was very adequate margin to be embedded. What has eroded that margin on the current portfolio are basically three things.
Speaker 3: transcript
Speaker 3: We're feeding demand that's growing among corporate and government. We're seeing rental increase commensurate with ownership. And importantly, we're getting an early jump on a set of learned skills that I don't think are easy to learn or or gain overnight.
Among corporate and government.
We're seeing rental increase commensurate with ownership.
And importantly, we're getting an early jump on a set of learn skills that I don't think are easy to learn or or gain overnight.
Speaker 3: transcript
Speaker 3: And I would tell you that when you look at those rationale, when you look at that rationale as to why we want to be a first mover, you know, I would say that your engagement with a customer who wants to rent an EV from you starts to get sticky because the rhythm is established. They understand how to do it, where to do it, how your apps work, where they're charged.
And I would tell you that when you look at the those rationale when you look at that rationale as to why we want to be a first mover I would say that your engagement with a customer who wants to rent an EV from U starts to get sticky because the rhythm is established they understand how to do it where to do it how your apps work where they're charging.
Chris Woronka: One is depreciation, which was occasioned by about a drop of a third in the MSRP of these cars. Obviously, that lowered the residual and elevated depreciation. The second is around damage and salvage. This is a solvable issue and one that we are working on right now. It's both a question of incidence of damage and cost. In the context of incidents, you know, we are working hard to reunderwrite to the drivers that we're putting into these cars, particularly in our rideshare business.
Speaker 3: transcript
Speaker 3: The engagement with corporates with whom we have contracts and in conversations we've had with government would suggest that that too poses a very sticky engagement around this model of car, and we're going to pursue it. The engagement around rideshare involves a whole sort of exercise of engagement with Uber around programs and pricing schemes and technology engagement.
The engagement with corporates, with whom we have contracts and in conversations we've had with government would suggested that two poses a very sticky engagement around this model of car and we're going to pursue it the engagement around rideshare involves a whole suite of exercise of engagement with Uber around program.
Chris Woronka: So we're looking for more experienced drivers, longer length of keep, where the incidence of damage goes down, and then equally on cost, as I mentioned, right now EVs are costing us about twice in terms of damage cost repair than a conventional ice vehicle. Two things are going to happen here. One, our assumption is that the market's going to come our way, meaning the proliferation of aftermarket, the proliferation of parts supply is going to grow and come down in price.
And pricing schemes and technology engagement all of that is not repeatable quickly in the context of what's there and its a less competitive market relative to sort of the dynamic price movements you see in rack I'd also point out that the technology engagement that we have with Tesla was cited in the Tesla earning call.
Speaker 3: transcript
Speaker 3: All of that is not rippable quickly in the context of what's there, and it's a less competitive market relative to sort of the dynamic price movements you see in RAC.
Speaker 3: transcript
Speaker 3: I'd also point out that the technology engagement that we have with Tesla was cited in the Tesla earning call in the context of us creating unique apps for our customers that enable them to use the car with greater ease than not. All of these are aspects that I think
All in in the context of us, creating unique apps for our customers that enable them to use the car with greater ease than not all of these are aspects that I think will ultimately prove to be to our great benefit in terms of the value and we have a plan to sort of address the near term.
Chris Woronka: But we're not simply waiting for that to happen. We ourselves are negotiating around parts procurement at steeper discounts, doing damage repair ourselves, and bringing these expenses down. So damage in salvage is going to come down both by actions we are taking currently in addition to where the market is moving. The third piece, so the first being depreciation, the second being damage and salvage, the third being RPU. That is, what are we generating by way of revenue per unit on these cars?
Speaker 3: transcript
Speaker 3: will ultimately prove to be to our great benefit in terms of the value. And we have a plan to sort of address the near-term cost that it produced that delta in margin. Very helpful, thank you.
Costs that it produced that delta in margins.
Sure.
One moment our next question.
Speaker 1: transcript
Speaker 1: Our next question comes from Chris Stathopoulos with SIG. Your line is open.
Our next question comes from Chris Lewis with <unk>. Your line is open.
Chris Woronka: And as I said in my prepared remarks, you know, we went through a reunderwrite to our rideshare business, move cars into leisure. We're now quite confident to move them back. That's going to have two effects. One, it's going to feed a higher RPU in natural demand that's being expressed among Uber and Lyft drivers, and equally it's going to tighten supply relative to natural demand that exists, and we will see the premium pricing come back up.
Speaker 6: transcript
Speaker 3: Thank you. Stephen, appreciate all the detail here around the EVs. If we could talk a little bit about the dollar and thrifty efforts here, could you provide a little bit more detail on this initiative? Some of the tactics and timeline, I'm guessing some of the, a lot of this will be addressed at your investor day, but any more detail here, tactics and timeline would be helpful. Thank you. Sure. Yeah, absolutely. So just for context.
Okay.
Thank you.
Stephen I appreciate all that.
The detail here around the Evs, if we could.
Talk a little bit about the dollar and thrifty efforts here could you provide a little bit more detail on this initiative some of the tactics. Some timeline I'm guessing some of a lot of this will be addressed at your Investor day, but.
Anymore detail here.
Some timeline would be helpful. Thank you sure yeah, absolutely so just for context.
Chris Woronka: Of course, all of those observations relate to the remediation of margin on the current portfolio. I think the second way to answer your question is on the forward. New buys here are going to come at lower prices. We are better buyers at lower prices. Now, we'll pace ourselves to ensure both that the problems that are in front of us are solved and being solved and equally watch what demand looks like, but I can tell you we remain committed, as I said, to being a first mover.
Speaker 3: transcript
Speaker 3: Dollar and Thrifty were brands that were bought by Hertz about, I think, more than a decade ago.
Dollar and Thrifty were brands that were bought by Hertz about it I think more than a decade ago.
Speaker 3: transcript
Speaker 3: I think that they were not particularly well attended relative to sort of where our competition moved with value brand. And the TAM here is significant.
And.
I think that they were not particularly well attended relative to sort of where our competition moved with value brand and the Tam here is significant.
Speaker 3: transcript
Speaker 3: And I think that part of the challenge that we have, and it proved out in the third quarter, is that
And I think that part of the challenge that we have and it proved out in the third quarter is that the.
Speaker 3: transcript
Speaker 3: the journey for a customer around our value brand is not yet to the specification that it ought to be. And as a consequence, we're compelled to price lower than where other value brands price. So somebody, for example, that cares to use an OTA as opposed to coming to us directly, we'll see a score around the dollar or thrifty brand that is appreciably lower than the competition.
The the journey for our customer around our value brand is not yet to the specification that it ought to be and as a consequence, we're compelled to price lower than where other value brands price. So somebody for example that cares to use an O T a as opposed to coming to us directly.
Chris Woronka: It's important to us, but now buying these cars, 25 or 35,000 dollars are in that range. Obviously, make margins work work and equally will only improve as and to the extent that we resolve the damage and salvage and the RPU component, recognizing depreciation on the extended fleet or the existing fleet will remain fixed. I think there, the notion of being a first mover, as I said, is compelling to us now as it was before.
We will see a score around the dollar or thrifty brand that is appreciably lower than the competition and they they then make a judgment about how much lower will they need to procure a car to justify that experience. We don't want that to happen anymore. So we're improving the journey in order to regain pricing leverage and ultimate pricing.
Speaker 3: transcript
Speaker 3: and they then make a judgment about how much lower will they need to procure a car to justify that experience.
Speaker 3: transcript
Speaker 3: We don't want that to happen anymore. So we're improving the journey in order to regain pricing leverage and ultimate pricing parity.
Chris Woronka: There are learnings that are here, and we know how to fix some of these cost initiatives. The last thing I'll say just closing out on your question is that I think the one thing to take note of when you put a boundary around the EV cost issue, and you look at margin being several points or several hundred basis points higher, is that it does speak to the inherent strength of the core ice business.
Parity so what are we doing.
Speaker 3: transcript
Speaker 3: First of all, the shopping book is better. We have engaged with third parties in the build of a different shopping book proposition. That will yield outcomes where we will communicate much like the airlines do with somebody that's gonna rent a car from dollar in advance, where we'll offer evaluated service products, upgrades, and the like. Again, much like the airlines.
First of all the shop and book is is better we have engaged with third parties in the build of a different shopping book proposition that will yield outcomes, where we will communicate much like the airlines do with somebody that's going to rent a car from dollar in advance where we'll offer a value added service products up.
Chris Woronka: And that's reflective of pricing strategies we've taken around Hertz and strategy we're developing around our value brand dollar and thrifty. And equally, I think it reflects the baseline demand of a relatively strong market that still is seen need for our product. Okay, thanks for all the details, Stephen, super, super helpful. So as a follow up and realizing this is this is probably imperfect question and a little bit theoretical. As we look to next year because you've talked about a lot of initiatives and a lot of things that went sideways this year that you're working on.
Grades and the like again much like the airlines do.
Speaker 3: transcript
Speaker 3: Then you will arrive at the airport with an assigned space where your car will be. There will be people with tablets who are going to sort of show you to an upgraded car, should you want it, offer you other services to the extent you want it. You'll be given a QR code. You then move to the exit gate and off you go. And we will have captured on the shop and book driver's license and various other things. That is a much better process than one that involves long wait times online.
Then you will arrive at the airport with an assigned a space where your car will be there will be people with tablets, who are going to sort of show you to an upgraded car should you want it offer you other services to the extent you want it you'll be given a QR code. You then move to the exit gate and off you go and we will have captured on the <unk>.
Chris Woronka: I mean, I guess if we took some of the macro out of it and just said, hey, you're going to have, you know, flat volume and flat RPD. What is there a level of offset you can quantify in terms of what, you know, what would it take to get EBITDA growth next year if you had had a very small range of top line outcomes. Again, not necessarily a super realistic question, I'm trying to get a sense for, you know, what can actually how much do some of these things that impacted you in 23 and some of the initiatives you're still rolling out?
And book driver's license and various other things that is a much better process than one that involves long wait times online.
Speaker 3: transcript
Speaker 3: Now, this is not a hypothetical. This is already happening at four airports. So this is a project that is begun already. We're going to look to expand it to 10, then 20, then to the top 30 airports, and expand this as and when we test it, validate it.
Now this is not a hypothetical this is already happening at four airports. So this is a progress a project that is begun already we're going to look to expand it to 10. Then 20, then to the top 30 airports and expand this as and when we tested validated Pune any issues that need to be honed and get.
Speaker 3: transcript
Speaker 3: hone any issues that need to be honed and get this out. And again, this is not a share grab. Much as I'd like to take share, this is a question of can we take price even against the static book of business, which will be meaningfully accretive to us in the context of lower cost, lower depreciated cars, better margin and better price.
This out and again this is not a share grab much as I'd like to take share. This is a question of can we take price even against the static book of business, which will be meaningfully accretive to us in the context of lower cost lower depreciated cars better margin and better pricing.
Chris Woronka: Can that, you know, at what does that add up to potentially in 24? Sure. Well, I don't think it's a theoretical question. I mean, it's a question that sits right in front of us and, and we are minded to execute to it. And I would say it's both on the revenue and the expense side on the revenue side, you know, we're not waiting to start on the build of the dollar brand.
Speaker 10: transcript
Speaker 10: Okay, thank you. And then on the demand side, I know that you said,
Okay. Thank you and then on the demand side I know that you said.
Speaker 10: transcript
Speaker 10: Fourth quarter has found like at least, evenly in line, but we've had some results from several of the airlines.
Fourth quarter is.
I would like at least seasonally in line, but we've had some results for <unk>.
Chris Woronka: And we're not waiting to continue to build and improve and benefit from strong growth in our right share business. And on the dollar side, you know, as I mentioned, let's assume that there's no incremental share pickup. Another is assumed dollar is not a share grab, just take it as relatively flat volume. The ability to take price up by offering out a better product such that we see people in greater strength coming to us.
Several of the airlines today.
Speaker 11: transcript
Speaker 11: Some worse than others, it would suggest that leisure demand here in the US is softening. So could you perhaps provide a little bit more detail as it relates to put these in however bucket you see it as it relates to leisure business and then ensure inbound international. Thank you. Yeah.
Several worse than others.
It would suggest that.
Leisure demand here in the U S.
Softening so could you, perhaps provide a little bit more detail as it relates to diesel.
However, buckets you see it as it relates to leisure business, and then sort of inbound international Thank you.
Yeah.
Speaker 3: transcript
Speaker 3: As I read the airlines and I listen to the commentary, there's a bit of a dichotomy that's breaking between kind of upper end travel, which I would include certain corporate travel and more leisure or value travel. And obviously the airlines skew differently as to which component of that they emphasize.
I think that.
As I read the airlines and I listened to the commentary there's a bit of a dichotomy that's breaking between kind of upper end travel, which I would include certain corporate travel and more leisure or value travel and obviously the airlines skew differently as to which component of that de emphasize I.
Chris Woronka: The ability to exercise price leverage on the back of a better product on a static book of demand is financially a creative to us. On the right share side, we continue to see extraordinary growth, 50% growth since the beginning of the year. And I think this is only going to continue to grow because with time we move closer to deadlines in certain cities, where in fact, this is going to be a requirement.
Speaker 3: transcript
Speaker 3: I would say in our Hertz brand, which plays to a more premium product, both by way of service offering loyalty and the like.
I would say in our Hertz brand, which plays to a more premium product.
Both by way of service offering loyalty and the like we continue to see strength in leisure both in North America and in Europe.
Speaker 3: transcript
Speaker 3: We continue to see strength and leisure both in North America and in Europe .
Speaker 3: transcript
Speaker 3: Now, it's obviously hard to have conviction as to what's to happen to the consumer and what's to happen to the economy as we get deeper into the fourth quarter or into next year. And obviously we have a slightly more limited forward booking view than do airlines or hotels. But in the context of what we see and in the skew that we see around certain of the airlines,
Now, it's obviously hard to have conviction as to what has to happen to the consumer and what has to happen to the economy as we get deeper into the fourth quarter or into next year and obviously, we have a slightly more limited forward booking view, then do airlines or hotels, but in the context of what we see and in the SKU that we see.
Chris Woronka: On the cost side, again, let's not let EV mask progress being made on DOE, DOE was down 10% on a per day basis per transaction day basis year over year. That's not the end of the work that's going on and our new CLO is going to come in and take this on full bore as we continue to drive meaningful cost reduction out of the business because technology will improve our ability to operate with efficiency and equally we're going to look for efficiency in the context of taking cost down that relates to this EV issue around damage and collision and the like.
<unk> around certain of the airlines I feel quite good about the Hertz brand our ability to continue to see demand and we're going to do all that we can do to sort of capture as much pricing as we can around that brand. Obviously the dollar value brand is is is being built.
Speaker 3: transcript
Speaker 3: I feel quite good about the Hertz brand, our ability to continue to see demand, and we're gonna do all that we can do to sort of capture as much pricing as we can around that brand.
Speaker 3: transcript
Speaker 3: Obviously, the dollar value brand is being built, as I've now described several times in response to questions. Could that get softer? It could. But I think the countervailing view on it is that as we improve, we'll gain some pricing pressure. And we're not looking to that in the earliest phase of that model to see a meaningful pickup in days. We're just looking for pricing leverage around it. So that's how I would parse through this.
As I've now described several times in response to questions.
Could that get softer it could but I think the countervailing view on it is that as we improve we'll gain some pricing pressure and we're not looking to that in the earliest sort of phase of that model to see a meaningful pickup in days, we're just looking for pricing leverage around it. So that's that's how I would sort of parse through this.
Chris Woronka: And so again, your question's not theoretical it's a work task that's right in front of us now that we're working on and again against a flat market as you characterize there are opportunities to take revenue up and there are opportunities to take expense down and on the revenue side it's not entirely reliant on growth and days it's leveraging price based on a better product. Okay, very helpful. Thanks, Stephen. Thank you, Chris. One moment for our next question.
Okay. Thank you.
Speaker 1: transcript
Speaker 1: includes today's question and answer session. I would now like to hand the call over to Steven Scher, Chief Executive Officer. Please go ahead.
Concludes today's question and answer session I would now like to hand, the call over to Stephen Scherr, Chief Executive Officer. Please go ahead.
Speaker 3: transcript
Speaker 3: So thank you all for your participation today. Before we close the call, I wanna thank the 25,000 employees of Hertz for their continued service and their attention to our customers. We look forward to sharing further updates with you on our next call. Back to you, operators.
So thank you all for your participation today before we close the call I want to thank the 25000 employees of Hertz for their continued service and their attention to our customers. We look forward to sharing further updates with you on our next call back to you operator.
Ian Zaffino: Our next question comes from Ian Zaffino with Oppenheimer. Your line is open. Hi, Chris. Thank you very much. I just wanted to follow up maybe on that previous question and then I really am a main question. Can you maybe talk about how much of the dilution or whatever you want to call it from EVs? It's specifically, I guess, related to Tesla versus non-Tesla. So if you normalize, and that's the flea kind of normalizes, you know, throughout various EVs, we just naturally get a margin uplift from that diversification.
Speaker 8: transcript
Speaker 1: This concludes the Hertz Global Holdings third quarter 2023 earnings conference call. Thank you for your participation.
This concludes the Hertz Global Holdings' third quarter 2023 earnings conference call. Thank you for your participation.
Yeah.
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Okay.
Ian Zaffino: And then I guess the main question was on the pricing side, I guess we're not pricing. I think you said market shares were relatively stable. Can you maybe just talk about the environment, kind of the willingness of competitors to follow your lead when you try to take up price and what they're kind of generally thinking overall. Thanks. Sure, yeah, sure. So first on the EV question, recognize that the total EV fleet is about 11% of the total fleet and Tesla is represent about 80% of that.
Ian Zaffino: And so there's quite a bit of the cost element that relates to the Tesla as opposed to others. And so, you know, our focus and our work with Tesla is to look at the performance of the car. So it's the lower the risk of incidents of damage and we're in very direct engagement with them on parts procurement and labor and the like. So that's working. I would say that over time, you know, to the extent we take on more GM electric vehicles as an example, again, we'll be buying all of the forward EVs at an appreciably lower price point, then where we bought the 80% of our fleet, which is Tesla.
Ian Zaffino: So that's obviously of benefit. And I think that there are elements of those cars that will likely speak to lower incidents of damage, but I think perhaps more importantly, you will speak to a lower cost of parts and labor. Remember in the likes of GM and other OEMs, there's decades of establishment of a broad national parts supply network. There's an aftermarket of parts that that is there that is less mature, obviously in the context of Tesla.
Ian Zaffino: And so I suspect as implied by your question that margins will improve and this issue will improve as we look to diversify. But that's not to say that we don't see improvement happening just on our own workflow both to both to reduce reduce incident and equally, you know, the way in which we incur the cost on this. So I think there's a natural progression of cost reduction, but I think there's work in front of us, we understand what it is and we're doing it, you know, to fix it.
Stephen Scherr: On the second part of your question around pricing, look, we're dramatically changing the way in which hurts as a brand behaves. I mean, for many, many years, hurts was known as a brand that sort of played to the low end of price, meaning we played hired a volume, drove price down to find that volume. And produce revenue on that basis, it is undeniably the inverse now, we have taken brands and disassembled them, we look at markets, we look at cars, we look at customer sets.
Stephen Scherr: And we broke down, for example, hurts into deciles, we clipped the lower decile, not willing to sort of rent at that particular price. And then we looked to find markets as I said in my prepare remarks that demonstrate price in elasticity. And as I said, I think it was at the JP Morgan conference quite publicly in the summer, we were at that point, orchestrating a price increase on hurts. And we were able to do that in a way where we saw very little in the way of degradation of volume, but bringing price up and remember price runs about 80% to the EBITDA line.
Stephen Scherr: So you're more than willing to sort of sacrifice volume where you can take price up, not to the extreme, but within the boundaries of reason, and we did that. And we did see some fellowship and we continue to show price leadership in and throughout markets where we can, we can make that trade and we will make that trade all day. The circumstance and dollar as I mentioned is a different one, we're reinvigorating that brand and we're doing that for a reason, we're doing it because a better product will give us greater pricing leverage.
Stephen Scherr: And our hope and expectation is that we're on a journey to get to better pricing parity to our competitors and we will get there. You know, these are people that rent once or twice in an 18 month period, they are skewed heavily toward price, but not if the experience is going to be at a meaningful discount. And so bringing that experience up will give us pricing pressure. And again, as I said, the whole notion around dollar doesn't depend on share and gaining days, it depends on taking a static number of days and bringing price up and we're quite confident in our ability to do that. Okay, thanks.
Ian Zaffino: Now, I could just squeeze in one quick one for Alex. You know what I mean?
Alexandra Brooks: Just to talk about some of the productivity initiatives you guys have in place now, and how are the benefits you've obtained so far. Thanks. Ian, thanks for the question. When you look at DOE per transaction day, the headwinds on collision and damages are masking the underlying progress we've been making on our core cost initiatives. And as we mentioned in our prepared remarks, we've achieved over 100 million of DOE savings on a year over your basis through these productivity improvements.
Alexandra Brooks: About half of that is related to labor productivity, particularly in the field, and about half is in our fleet related cost savings, like maintenance, fuel and transportation costs. So double clicking into that on field labor productivity, we reduced our own staffing over time, and we've also cut back on our third party labor. And on the theme of third party labor, we've also reduced it as it relates to our maintenance and vehicle documentation.
Alexandra Brooks: So by bringing more of this work in house, we're better able to control our own costs and achieve our productivity objectives. On fuel, we're using enhanced telemagics to improve our accuracy, and on transportation costs, we've employed advanced fleet management tools to streamline our fleet movements and reduce our transportation costs. So we're encouraged by our progress so far, but there's more work to do here as Stephen mentioned.
Operator: And we're looking forward to Justin Cappy joining the team of our new COO and driving these initiatives even further. All right, perfect. Thanks for the color. Appreciate this guys. Thank you. One moment for our next question.
John Healey: Our next question comes from John Healey with North Coast Research. Your line is open. John, please make sure your line is unmuted. One moment for our next question.
Stephanie Moore: Our next question comes from Stephanie Moore with Jeffries. Your line is open.
Hans Hoffman: Hi, this is Hans Hoffman on first Stephanie. I was just curious, did moving more Tesla's into your leisure segment give you any sort of RPB bond in the quarter and if so, could you maybe quantify that? And that was also just kind of curious. I guess he's saying that over time that Tesla can kind of maintain their RPD premium kind of given these sort of discounts, or if there's maybe some sort of novelty factor, that's kind of playing into the RPD premium there.
Stephen Scherr: Sure, thanks for the question. So on the electric vehicles in leisure, I think on the forward, our view is that we need to bring supply in line with natural demand that's being expressed. And as we've always said, you know, we want to bring, you know, our fleet inside the demand curve, that same holds true in terms of electric vehicles in leisure. And there are a number of sort of, you know, parts to the demand equation, you know, on the on the rack side, leisure, of course, being one where people have a natural desire and interest in driving an EV, equally, you know, our fleet becomes a very interesting proposition around test drive for a lot of these cars for people who are being introduced to this.
Stephen Scherr: But equally, we see opportunity for EV deployment and rack around insurance replacement around corporate and government, all under the Hertz brand. And in those cases, these are Tesla drivers who have an insurance replacement and will want to take on another EV as part of that insurance replacement product. And we see growth in corporate and in government, where in both instances, there's a desire to pick up on sustainability objectives that they have.
Stephen Scherr: And so there are a number of pockets of demand that will drive in the rack side, and we need to maintain the supply that's inside that to attain to attain kind of premium RPU. I would say equally and maybe more impactly, you know, the electric vehicle in our ride share business as an interesting and different and very strong level of demand. Again, that demand is on the part of the driver who wants entry into an electric vehicle, because the net economics to that driver, both by virtue of renting a car from Hertz around fuel and around incentives that are given to them by the ride share.
Stephen Scherr: Our mobility companies yields a better economic outcome from them or for them. And to the extent that these cars are still expensive, new, and there's been no real used market that to come about, you know, we become the natural and most economic entry point for those drivers to come in and the benefit is proving out. And so we're seeing meaningful growth in demand in the right share side, and we're equally seeing longer length of keep.
Stephen Scherr: And we've been designing incentives and programs and pricing schemes in tandem with Uber to sort of feed that that is get more experienced drivers in with longer length of keep that obviously drives down damage costs, but equally drives down cost overall because remember length of keep in that business is key to bringing the ultimate cost down. And the margin of that rental high.
Stephen Scherr: Scott Haralson, Stephen Scherr, Wayne West, John Healy, Chris Woronka For as well, just kind of carry it to, you know, higher fleet owning costs and then potentially more residuals could be someone like a limiting factor here. Well, look, I would say that there's no departure from what we have fed repeatedly in terms of priority, which is to invest in fleet and non-fleet in terms of building the business and then looking at buyback as an opportunity.
Stephen Scherr: It's obviously an attractive opportunity given where the stock price has moved, but we take all three of those in tandem and make, you know, make a decision on rational deployment of capital against, you know, both the near term and short term value of that investment. Got it. That's helpful. Thanks. Sure.
Operator: One moment for our next question.
John Healey: Our next question comes from John Healy with North Coast Research. Your line is open. John, please make sure your line is not muted. One moment for our next question.
Ryan Brinkman: Our next question comes from Ryan Brinkman with JP Morgan. Your line is open. Hi, thanks for taking my question. I thought to ask on EVs also. I appreciate the comments about EBITDA margin, the quarter pro forma for a purely ice versus blended portfolio. Have you maybe kept a running tally of all of the tailwinds to EBITDA since the start of purchasing EV strategy in the fall of 2021, such as higher revenue per day, which maybe didn't manifest itself as much this quarter, you know, lower routine maintenance costs and possibly even higher transaction days, although I'm not sure how you can measure that with certainty.
Ryan Brinkman: But then also the tailwinds to EBITDA like the higher collision damage repair costs that you cited in 3Q, but then also, of course, you know, the higher depreciation resulting from the Tesla and other EV automaker price cuts impacting residuals. Do you have that net number? And then is there like a targeted date by which EV portfolio that transition might turn into a positive EBITDA contributor relative to the ice portfolio when it would have similar or higher margins, etc.
Stephen Scherr: Well, let me start off by saying it is a positive contributed to EBITDA. It's just proving to be not as positive given some of these near term cost challenges that we both understand and are addressing straight up. And so it's important to sort of understand it that way. I think the way I would try to answer your question is that revenue production as a function of both price stability and demand for product, I think is clear.
Stephen Scherr: And that's being driven across the whole of our fleet. And remember, we're offering electric vehicles out to our customers because they want them, meaning we're offering the widest mix of vehicles to meet the needs and desires of our customer set. I'd also say that the offering of EVs as a product is an entry point into a rideshare business that would exist purely with ice, so don't misunderstand me, but I think is accelerated by virtue of the offer of electric vehicles.
Stephen Scherr: And they are growing quite considerably inside the fleet, you know, by an order of about 50% in growth in EV utilization in rideshare. And I think in response to the last question, it's clear that there are better economics that get even better just given where fuel costs and other costs sort of go for ultimate drivers. So part of what you see in the revenue is at tailwind. It is a benefit of the offering of the EV product.
Stephen Scherr: And so there is a contribution to EBITDA that's being made. The reason to call out, you know, the several points of margin degradation occasion by this is to really dimensionalize the effect of this. It is not a pervasive issue baseline costs in terms of DOE as Alex noted, came down 10% year over year. And so our ability to address and fix the cost equation, where I think the revenue equation is more in focus in terms of how to deploy the EVs, I think you'll start to see this, you know, reflect better in ultimate EBITDA production around the EV, but equally across the whole of the fleet. If that answers the question you were you were putting down.
Ryan Brinkman: Lewis. Yeah, that is helpful. Thanks.
Stephen Scherr: There's just maybe as a follow-up to it. You know, beyond addressing the repair cost issue, are there other changes you might be contemplating with regard to the EV strategies such as maybe pivoting away from earlier EV as a percent of fleet targets. You know, over the last week GM, for example, has pulled away from some of its EV sales and capacity expansion targets and light of changing demand in order to shore up or be able to reiterate per unit EV profitability targets.
Stephen Scherr: I heard you say you're now a buyer at lower prices of the Tesla vehicles, but how are you thinking about, you know, things are changing, you know, like Elon Musk comments on some of the recent Tesla earnings calls this year where he's spoken about being willing to potentially continue to lower prices on new vehicles all the way he said down to where they would make a 0% margin at the time of the new vehicle sale because he's hoping to make it up on the back end by monetizing a larger installed base to sell aftermarket rubber with taxi software and other services into so just curious how that might enter into your calculus if you're still comfortable buying Tesla even at lower prices, given that automakers mindset with regard to new vehicle pricing strategy going forward.
Stephen Scherr: Well, let me just say at the start, there's no world in which we're going to buy Tesla's to achieve a zero EBITDA margin. So that may be a strategy, you know, among a select number of OEMs, but it's not ours. We're going to hold every purchase to an ROA threshold where we're quite confident that the EBITDA margin to be generated on that car will be positive and will be attractive. So let me just be very clear about that.
Stephen Scherr: The comment that I made about being a better buyer for those cars that meet that threshold, we are by definition a better buyer at lower prices than to be a better buyer at higher prices. So price decline will benefit us in the context of forward purchases. I think it's also important to say that I'm not out to achieve a fixed percentage of our fleet being electric by date and time, meaning much as we had initially targeted to get to 25% of our fleet.
Stephen Scherr: Being electric by the end of 2024, I've said this before and I'll just repeat it here. That's not hard in stone, meaning we're going to continue to grow our fleet. We believe in them in the first mover advantage. We're going to hold ourselves out to a very hard screen on EBITDA margin and return. And so we're not a buyer for the sake of being a buyer, but we will continue to grow.
Stephen Scherr: I mean, as I said, the first mover edge here, I believe is real. And I think there's no technology change that has happened in the world that operates on a straight line without some sort of challenges that are presented. But I think in the end, it's our ticket to ride share. It's our access to partners. We're feeding demand that's growing among corporate and government. We're seeing rental increase, commensurate with ownership. And importantly, we're getting an early jump on a set of learned skills that I don't think are easy to learn or gain overnight.
Stephen Scherr: And I would tell you that when you look at those rationale, when you look at that rationale as to why we want to be a first mover, you know, I would say that your engagement with a customer who wants to rent an EV from you starts to get sticky because the rhythm is established. They understand how to do it, where to do it, how your apps work, where they're charged. Washington. The engagement with corporates with whom we have contracts and in conversations we've had with government would suggest that that two poses a very sticky engagement around this model of car and we're going to pursue it.
Stephen Scherr: The engagement around rideshare involves a whole sort of exercise of engagement with Uber around programs and pricing schemes and technology engagement. All of that is not repible quickly in the context of what's there. And it's a less competitive market relative to sort of the dynamic price movements you see in rack. I'd also point out that the technology engagement that we have with Tesla was cited in the Tesla earning call in the context of us creating unique apps for our customers that enable them to use the car with greater ease, you know, than not. All of these are aspects that I think will ultimately prove to be to our great benefit in terms of the value.
Ryan Brinkman: And we have a plan to sort of address the near term costs that have produced that delta in margin. Very helpful. Thank you. Sure.
Operator: One moment for our next question.
Christopher Stathoulopoulos: Our next question comes from Chris Statholopoulos with SIG. Your line is open. Thank you. Stephen, appreciate all the detail here around the EVs. If we could talk a little bit about the dollar and thrifty efforts here. Could you provide a little bit more detail on this initiative. Some of the tactics and timeline. I'm guessing some of the a lot of this will be addressed at your investor day, but any more detail here tactics and timeline would be helpful. Thank you. Sure. Yeah. Absolutely.
Stephen Scherr: So just for context, dollar and thrifty were brands that were bought by Hertz about it, I think more than a decade ago. And I think that they were not particularly well attended relative to sort of where our competition moved with value brand. And the cam here is significant. And I think that part of the challenge that we have and it proved out in the third quarter is that the the journey for a customer around our value brand is not yet to the specification that it ought to be.
Stephen Scherr: And as a consequence, we're compelled to price lower than where other value brands price. So somebody, for example, that cares to use an OTA as opposed to coming to us directly, you know, we'll see a score around the dollar or thrifty brand that is appreciably lower than the competition. And they they then make a judgment about, you know, how much lower will they need to procure a car to justify that experience.
Stephen Scherr: We don't want that to happen anymore. So we're improving the journey in order to regain pricing leverage and ultimate pricing parity. So what are we doing? First of all, the shop and book is is better. We have engaged with third parties in the build of a different shop and book proposition that will yield outcomes where we will communicate much like the airlines do with somebody that's going to rent a car from dollar in advance.
Stephen Scherr: We'll offer evaluated service products upgrades and the like again much like the airlines. Dove. Then you will arrive at the airport with an assigned space where your car will be. There will be people with tablets who are going to sort of show you to an upgraded car. Should you want it? Offer you other services to the extent you want it. You'll be given a QR code. You then move to the execute and off you go.
Stephen Scherr: We will have captured on the shop and book driver's license and various other things. That is a much better process than one that involves long wait times online. Now this is not a hypothetical. This is already happening at four airports. So this is a project that is begun already. We're going to look to expand it to 10 than 20 than to the top 30 airports and expand this as and when we test it, validate it, hone any issues that need to be honed and get this out.
Stephen Scherr: And again, this is not a share grab. Much as I'd like to take share, this is a question of can we take price even against the static book of business, which will be meaningfully accretive to us in the context of lower cost, lower depreciated cars, better margin and better pricing. Okay. Thank you.
Stephen Scherr: And then on the demand side, I know that you said the fourth quarter is a product like at least seasonally in line, but we've had some results from several of the airlines today, some worse than others. It would suggest that leisure demand here in the US is softening. So could you perhaps provide a little bit more detail as it relates to put these in however bucket you see it as it relates to leisure business and then inbound international.
Stephen Scherr: Thank you. Yeah. I mean, I think that as I read the airlines and I listen to the commentary, there's a bit of a dichotomy that's breaking between kind of upper and travel, which I would include certain corporate travel and more leisure or value travel. And obviously, the airlines skew differently as to which component of that they emphasize. I would say in our Hertz brand, which plays to a more premium product, both by way of service offering loyalty and the like, we continue to see strength and leisure both in North America and in Europe.
Stephen Scherr: Now, it's obviously hard to have conviction as to what's to happen to the consumer and what's to happen to the economy as we get deeper into the fourth quarter or into next year. And obviously, we have a slightly more limited forward booking view than do airlines or hotels. But in the context of what we see and in the skew that we see around certain of the airlines, I feel quite good about the Hertz brand, our ability to continue to see demand.
Stephen Scherr: And we're going to do all that we can do to sort of capture as much pricing as we can around that brand. Obviously, the dollar value brand is being built, you know, as I've now described several times in response to questions, you know, could that get softer? It could, but I think the countervailing view on it is that as we improve, we'll gain some pricing pressure. And we're not looking to that in the earliest sort of phase of that model to see a meaningful pickup in days. We're just looking for pricing leverage around it. So that's how I would sort of parse through this. Okay, thank you.
Operator: This includes today's question and answer session.
Stephen Scherr: I would now like to hand the call over to Stephen Scherr, Chief Executive Officer. Please go ahead. So thank you all for your participation today.
Stephen Scherr: Before we close the call, I want to thank the 25,000 employees of Hertz for their continued service and their attention to our customers. We look forward to sharing further updates with you at our next call back to you operator.
Operator: This concludes the Hertz school.
Operator: Global Holdings, 3rd quarter, 2023 earnings conference call. Thank you for your participation.