Q4 2024 Hertz Global Holdings Inc Earnings Call
Welcome to Hertz Global Holdings' 4th Quarter 2024 Earnings Call.
Beta evaluation of our profitability and performance unless otherwise noted our discussion today focuses on our global business on.
Speaker Change: On the call. This morning, we have Gil waste, all Chief Executive Officer, who will provide an overview of our strategy and discuss operational highlights and our fleet, our chief commercial officer Sandeep debate will then share insights into our capacity unit revenue and commercial strategy followed by Scott.
Speaker Change: We're also <unk>, our Chief Financial Officer, who will discuss our financial performance and liquidity. We are also joined by Devin Arrington, All the executive Vice President for revenue management, who will be available to answer questions. During the Q&A session.
Speaker Change: I'll now turn the call Gil.
Speaker Change: Good morning, everyone.
Gil Waste: As I reflect on my first eight months at Hertz 2024 was undoubtedly a challenging year for our company, but I am pleased to share that we've taken the necessary actions to turn the page on the past and set hertz up for ongoing success.
Gil Waste: While there is still a lot of work to do we are already seeing encouraging signs of progress as we've implemented fundamental changes, which have laid the foundation to transform our company for the long term when.
Gil Waste: When I joined I recognized two basic truths.
Gil Waste: We have an iconic brand and our success is powered by our people. So.
Gil Waste: So I want to start by thanking our dedicated team for their resilience and commitment.
Gil Waste: Through this period of significant change, especially during the busy holiday season, we sent our team throughout the year and supplemented our resident expertise and the rental car industry with experience and transformation and operational excellence across transportation companies.
Gil Waste: And consumer brands.
Gil Waste: Many of these individuals also have experience with managing asset heavy businesses and all of them are attracted and committed to transforming hertz to once again be an industry leader.
Speaker Change: Most recently, Chris Byrd supplemented our best in class leadership team as our chief administrative officer.
Speaker Change: Chris spent over 20 years at home depot running large scale transformation projects and operations across 500 stores and 100000 employees and is.
Speaker Change: Enhancing our ability to execute cross functionally.
Doria Holbrook also recently joined as EVP of mobility.
Speaker Change: Sorry, it was instrumental and operationalize ing Amazon's last mile delivery service.
Speaker Change: And we will bring innovative expertise to the significant opportunities we see in this space.
Speaker Change: Our new organizational structure enables faster more rigorous execution of our strategy. We've also deployed robust management operating systems, which drive a disciplined approach to managing the business and achieving results. These systems are fueled by goals.
Speaker Change: Which provide the proper focus for the team managing with data reporting on all aspects of the business rigorous performance reviews and reward systems that aligned to the success of the business.
Speaker Change: With these foundational elements in place we are building a high performance culture driven to win to once again become a leading employer of choice.
Speaker Change: Our actions are guided by our back to basics roadmap and are anchored by three core financial pillars fleet revenue and cost management. The key enablers to these pillars are our people technology and processes.
Speaker Change: Turning now to the first of our financial pillars, the fleet as I mentioned before.
Speaker Change: We are turning our fleet from a headwind to a tailwind for the business through our ability to buy right hold right and sell right.
Speaker Change: Our transformative fleet rotation is well underway and as of year end 2024 over 60% of our fleet was comprised of vehicles, one year old or less and we remain on track to substantially complete our fleet rotation by year end 2025.
In terms of our buy right strategy.
Our risk vehicles that is vehicles with the residual value exposure have an average cap cost almost 30% lower than our existing fleet of model year 'twenty two through 'twenty four car buys.
Speaker Change: Our fleet rotation will provide benefits to our customers our cost structure, our balance sheet and unlocks our ability to achieve sub 300 dollar D. P U.
Speaker Change: In Q4, we aggressively aligned our fleet size to meet the seasonal demand patterns and sold 100000 vehicles up from just over 30000 in Q4 23.
Speaker Change: This is a significant effort by the team given both the volume and timing of the sales.
Speaker Change: Of this we chose to leverage wholesale channels. In addition to our more desirable retail channels to achieve our strategic goals.
Speaker Change: As one of the world's largest car dealers, we recognize the unique opportunity that Hertz car sales presents.
Speaker Change: Because of this we are prioritizing, making retail our primary car selling channel, we have several initiatives underway, including increasing awareness of the Hertz car sales brand and improving the digital and purchasing experiences so that customers can more easily.
Speaker Change: Discover and purchase the car they want whether online or any order across hurts expansive footprint in parallel we continue to grow our retail sales channels through strategic partnerships.
Speaker Change: In 2024 hurt serviced 154 million transaction days, our year over year utilization improved 270 basis points when comparing Q4 to Q3, despite the seasonally adjusted demand in the industry large, Italy being similar between the quarter.
Speaker Change: Orders.
Speaker Change: Through our operational improvements and our fleet management.
Speaker Change: In our effort to sweat the assets, we remain focused on eliminating unproductive vehicles to generate higher utilization.
Speaker Change: We are working towards turning our vehicles more productively and shortening our vehicle turnaround time from drop off to rental reducing vehicle out of service and shortening our vehicle sales cycle times, which drive out waste by leveraging process and technology.
Speaker Change: Our partnerships with talented <unk> and Golar group are enabling us to harness our data through redesign processes to more efficiently operate our fleet.
Speaker Change: It is worth noting that we have completed the 30000 EV fleet reduction announced just last year moving forward, we recognize the strategic value of Evs in the markets with established product market fit and infrastructure, particularly in a rideshare business where drivers receive advantageous partner in <unk>.
Speaker Change: And as for choosing evs over traditional ice vehicles.
Speaker Change: I'm also encouraged by the progress our team is making both on revenue and cost, which sandeep and Scott will discuss in detail.
Speaker Change: Finally I'd.
Speaker Change: I'd like to turn to our customers.
Speaker Change: We know that to truly earned customer loyalty, we must build trust and confidence in our service.
Speaker Change: In 'twenty 'twenty four we directly confronted the issues that drive customer satisfaction by addressing key pain points, providing newer well maintained vehicles the customers want to drive, creating seamless digital experiences better enabling self service rig.
Speaker Change: <unk> line waits at counters, delivering best in class customer service experience and ensuring effective problem resolution by putting ourselves on the other side of the counter and in our customers' shoes, we've seen strong gains in our net promoter scores both in our core customer experience.
Speaker Change: And in our customer service recovery, our passion for a better experience will not stop here, we're committed to making 2025, a breakout year for our customer.
Speaker Change: Having successfully launched our back to basics roadmap in 'twenty 'twenty four our focus for 'twenty 'twenty five as clear excellence in execution with strong execution of our strategy. We are confident we can strengthen the core business, unlike new areas of value creation and restore hertz.
Speaker Change: Back to its full potential there is no doubt it will take hard work to make our strategic goals a reality, but I know we've got the right team in place and plans in place to do it with that I'll turn it over to Sandeep.
Sandeep Debate: Thanks, Gail and good morning, everyone.
Sandeep Debate: First let me thank the entire <unk> team for their hard work.
Sandeep Debate: Therefore, because on our customers and commitment to our success continue to make our company stronger.
Sandeep Debate: On our last call I commented on our newly formed commercial team and gave you some insight into our strategy better utilization of our fleet.
Sandeep Debate: Levering, an unmatched customer experience.
Sandeep Debate: And driving a better RPT mix through improved ability to generate cottonwood and monetize demand.
Back then we had just started on our journey by identifying areas for improvement.
Sandeep Debate: Since then <unk>.
Sandeep Debate: Team has been intensely focused on executing our strategy.
Sandeep Debate: We're starting to see the impact of those efforts.
Sandeep Debate: Let me start with our key commercial objectives maximizing IP you, we have systematically delivered year over year RPM improvements for each quarter sequentially from Q1, where it was down 7% to Q4.
Sandeep Debate: It was down 1%, including a 150 basis point improvement between Q3 and Q4.
Sandeep Debate: Just as encouraging is that we saw intra quarter us sequential year over year improvement from October to December.
Sandeep Debate: The key drivers, while becoming better at capacity management relative to demand improved.
Sandeep Debate: Improved demand generation and improved segment management, which resulted in a greater mix of high IPD segments.
Sandeep Debate: When it comes to fleeting under the demand curve I had mentioned in the Q3 earnings call.
Sandeep Debate: We are working on are on process improvements between the fleet team and commercial team.
Sandeep Debate: To refine our ability to fleet under the demand curve.
Sandeep Debate: Our stated goal is to sweat our assets, while staying inside the demand curve, well, a nimbler and more coordinated process, but between those two teams is delivering better results are.
Sandeep Debate: Our average fleet size was down 4% in Q4 year over year, and even better that same metric for December was down 6% year over year.
Sandeep Debate: We ended the year with a fleet size that was 7% below the start of 2020, Paul and more in line with demand what.
Sandeep Debate: What is exciting to me is that we see further scope for process improvement between the fleet and commercial team.
Sandeep Debate: And we are actively working on those to deliver results in 2025 as Gideon noted we are seeing strong year over year utilization improvement quarter over quarter, we have a rich set of opportunities that we are actively working on positioning us to be excited about 2025.
Sandeep Debate: Dave.
Speaker Change: Turning to our commitment to delivering an unmatched customer experience. We firmly believe that customer satisfaction is the cornerstone of driving durable demand and fostering loyalty, we are moving that focus and speed.
Quick Little example of the same in August 'twenty 'twenty four as part of the commercial team's management operating system. We prioritized. So this recovery of customer issues.
Speaker Change: Just five months through our focus and drive leveraging people processes and technology are so this recovery scores have improved 60 points and we have only just started on this journey.
Speaker Change: Our RPT mix initiatives are also beginning to show promise.
Speaker Change: <unk> seen year over year growth and a positive trajectory in bookings on harsh dot com from Q2 through Q4.
Speaker Change: These are relatively higher RPT bookings we.
Speaker Change: We are becoming more effective in our demand generation strategies, leveraging technology and the rapid test and learn culture that I detailed in a prior earnings call.
Speaker Change: In addition, our quest for driving greater durable demand is starting to show progress case in point in Q4 loyalty enrollments grew 18% year over ear.
Speaker Change: We also continue to focus on exiting lower yielding non durable business and and enhancing our revenue management tools.
Speaker Change: Additionally, we are focused on leveraging dynamic pricing for value added services, which we believe will also add to improving our P. U S.
Speaker Change: In summary, when I look back at 'twenty 'twenty, four I am grateful to the HUD steams in delivering improvements in our commercial results coming into 2025 travel demand continues to be robust.
Speaker Change: Demand look really strong phy MLK.
Speaker Change: Reservations for the upcoming Presidents' day weekend are looking good to the.
Speaker Change: The commercial team is energized with the plethora of strategies, we are actively working on.
Speaker Change: We are focused on leveraging our management operating system across the team.
Speaker Change: Every team member has clear goals and a prioritized list of high impact initiatives being actively worked on to deliver transformation in 2025 and beyond.
Speaker Change: While we are in the early stages of our commercial strategy. We are building momentum and my confidence remains high that our commercial strategies will yield results that drive us towards our north star target of RP, you above $1500 and on that note I'll turn it over to Scott.
Thanks, Sandeep before I get into the results I want to give a huge shout out to the entire hertz team for their dedication to our customers and commitment to continuing to drive our transformation falling 24. It was a year of transition and our team was nimble and did a great job pivoting to meet the needs of the business while continuing.
Speaker Change: To serve our customers so a huge thanks to them.
Speaker Change: Turning to our financial performance for Q4 revenue for the quarter was just over $2 billion and our adjusted EBITDA was a loss of $357 million rare.
Speaker Change: Revenue was about 7% lower year over year, largely driven by a decrease in volume.
Speaker Change: We remain disciplined on capacity and continue driving utilization in fact fleet utilization was higher year over year for the first time in 2024, as we continue to execute on process efficiencies in the business.
Speaker Change: We made additional progress in the quarter on our fleet rotation and sold over 100000 vehicles, we got into a deeper view of 350 to $375 and our gross depreciation came in slightly better than that at $347. However, MMR values drop below forecasted levels and caused a book.
Speaker Change: Why you lost wholesale for those vehicles sold in the fourth quarter driving our net TPU number above the top end of the range.
Speaker Change: It was a risk of selling in the fourth quarter, which is a seasonally softer period, but it was the right thing to do to push forward and not carry the additional vehicles into 2025.
Speaker Change: Overall Q4, depreciation was clouded by the sale of vehicles and it is likely this will continue into Q1, a bit as we continue to accelerate our fleet rotation.
Speaker Change: Given this we expect D. P. You for the first quarter to be slightly below the fourth quarter of 2025. However, this shouldn't decline after Q1 for a few reasons. One gross depreciation continues to decline from newer model year car purchases to we have less of the higher cap costs cars to sell.
Speaker Change: Three we are further along in optimizing our retail sales channels and four we will be selling into a seasonally stronger sales period, we still expect to exit the year at our target of below 300, a month per unit.
Speaker Change: Regarding operating expenses, our operational execution in our core cost components of the business such as labor maintenance collision and supply chain are all working in our favor as those costs were lower year over year in.
Speaker Change: In fact in the fourth quarter, our core operating D. O per day is down slightly year over year, even with lower days production.
Speaker Change: Also we expect these trends to continue into 2025.
Speaker Change: In addition to good cost control as Sandeep mentioned will continue to drive utilization through process efficiency as I have said many times. Good unit cost management starts with an efficient production of units and we will continue to drive that.
Speaker Change: However, with all of that said, we had a couple of outsized headwinds that obscured the progress we have made on the operating side.
Speaker Change: As in prior periods insurance continues to be a headwind.
Speaker Change: Initiatives, we discussed on prior calls started to take effect in January so we expect some benefits to start to materialize, but it will take until the latter part of the year to make a significant impact.
Speaker Change: We took a sizable increase in our insurance reserve in Q4 that pushed D O higher than our usual run rate.
Speaker Change: We anticipate that this will allow us to now maintain a more reasonable run rate going forward.
Speaker Change: Second a consequence of the impairment we recognized in the third quarter is it change in how we are required to account for lease expenses primarily airport leases.
Speaker Change: The right of use asset was impaired, but the post impairment lease liability did not change.
Speaker Change: The accounting results and an expense that is no longer straight lined but now results in a downward sloping expense through the end of the lease.
Speaker Change: We expense more immediately after the impairment, but that expense gradually declines over time.
Speaker Change: We will be taking a higher noncash increase in expense today, but will benefit from a lower expense in the outer years, probably starting in 2027.
Speaker Change: These items should start self correcting themselves as we head through the year.
Speaker Change: All in all we've made good progress on our core cost components and we're controlling what we can control, but there are some items that concealed from progress being made to our core operating costs. Despite all of this we expect our D O plus SG&A unit cost to be flat to down year over year in 2025, even with a smaller fleet.
Speaker Change: Further for 2025, let me give you a little color on EBITDA for the year.
Speaker Change: We do expect to have a seasonal EBITDA loss in the first quarter that is smaller quarter over quarter, but exaggerated by inflated depreciation associated with the remaining loss on sale from older vehicles.
Speaker Change: For the remainder of the year, we expect the second quarter to be roughly breakeven.
Speaker Change: A sizable EBITDA profit in the third quarter and a small profit in the fourth quarter.
Speaker Change: This all equates to a low single digit EBITDA margin for the year.
Speaker Change: In terms of liquidity our position is strong at $1.8 billion at the end of 2024.
Speaker Change: In Q4, we completed a capital raise to enhance our liquidity and support our operational and strategic plans, we raised $500 million through the issuance of additional first lien senior secured notes due in 2029. We also received the requisite consents to amend certain provisions of the indentures governing our firm.
Speaker Change: First lien senior secured notes due in 2029 and exchangeable senior second lien Pik notes also due in 2009 2029. This was a positive development for our capital structure and provides us with additional financial flexibility.
Speaker Change: Looking ahead, we have upcoming debt maturities that we are actively planning to address and we are confident in our ability to manage these maturities.
Speaker Change: As we have mentioned previously we still expect our low point of liquidity to be around the middle part of the year. We don't expect to start building cash until the third quarter and we'll use cash in our fleet rotation until the during.
Speaker Change: During the first and second quarter of this year.
Speaker Change: We also have pending litigation.
Speaker Change: That has an undefined timing of resolution and outcome.
Speaker Change: We have however, begun discussions aimed at resolving this matter.
Speaker Change: Regarding our main a b S programmed our equity cushion continued to build another couple of percentage points in the facility, primarily driven by our investment in newer vehicles.
Speaker Change: Assuming residual values remain stable and as we continue rotating out of older cars. We expect this trend to continue.
Speaker Change: In terms of future guidance since the clean up from 'twenty 'twenty four isn't completely done yet it makes it difficult for us to accurately guide to more specific financial targets for the next quarter. The directional guidance given thus far is what we are prepared to give today, but its a start and we will look to refine our guidance metrics over time.
Speaker Change: Before I hand, it back to Gil I want to reflect a minute on 2024.
Speaker Change: When I look back on my six months in 2024, I see the groundwork being laid for progress, but also recognize that the whole was large.
Speaker Change: We have been intensely focused on getting the business on solid footing and setting ourselves up for future success.
Speaker Change: We knew the cleanup in 2020 forward make things complicated from the fleet rotation to operational improvements a number of leadership changes and even in asset impairment and the resulting accounting complexities.
Speaker Change: We executed on liquidity initiatives to enhance our ability to rotate the fleet.
Speaker Change: Sizable improvements in our customer experience and NPS scores that will continue to move North launched detailed management operating systems that will be the backbone of our future execution and now turning our attention to 2025.
Speaker Change: That form is taking shape and by this time next year I plan to be talking about how the business is now positioned for success as we get closer to a run rate level of financial production and focusing on positioning hurts for the next decade and beyond.
Gil Waste: With that I'll hand, it back to Gil for his closing comments. Thanks, Scott I want to close by reaffirming what makes us so excited for Hertz future.
Gil Waste: As a global business with an iconic brand and a vast customer base Hertz has the infrastructure scale and expertise to lead the industry. Once again in fleet asset management operational excellence and delivering an unmatched customer experience with our world class.
Gil Waste: <unk> team I am confident we've laid the groundwork to not only reach our northstar metrics once again lead in the mobility space with that let's open it up for questions.
Speaker Change: 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 on your telephone keypad to cancel your question Dial Star One a second time, we will take our first question from the line of John Babcock with Bank of America. Please go ahead.
John Babcock: Good morning, and thanks for taking my questions. You did talk about that play refreshed and also about some of the operational changes you've made could you just kind of some sense as to what metrics you would guide us to on a go forward basis to gauge purchase Hertz as progress on the operational front.
Speaker Change: Well I mean, I'll start and Scott can chime in but I think on the operational front in particular the fleet rotation.
Speaker Change: Our norstar metric there is.
Speaker Change: <unk> D P U of less than $300.
Speaker Change: So couple of comments around that probably I mean, we were early to recognize the need for an improved fleet strategy and we've been aggressively actioning. It as you know, making the necessary investments and that the fleet strategy really unlocks our ability to get and sustain that sub $300.
Speaker Change: Sure D P U.
Speaker Change: We got.
Speaker Change: The committed model year 'twenty five buys locked in at the economics that foot to.
Speaker Change: That metric and we made the large investment in the fleet rotation, which is well under way and then of course, we'll make even further progress as those model year buys continue to deliver in the first half of the year. So the other aspect of that really is our how we when we choose to sell the vehicles right.
Speaker Change: War optimize the timing around that effectively shorten our holds but then the channels, we sell them through as well. So as I mentioned, you know driving those retail channels up are important we got right now.
Speaker Change: Less than 10% of our car sales run through auctions.
Speaker Change: And so we're confident we can achieve that.
John Babcock: That's D. P. You target, yes, John I'd, probably add maybe one or two more here, obviously utilization is a bedrock of of both.
John Babcock: The driving RP, you as well as cost efficiency in the business. So utilization is a critical metric that we're looking forward to.
Speaker Change: But also I would add to Sandeep comments earlier around NPS, we know, there's a strong correlation between being able to price and create demand and NPS. So that's a critical platform. So I think those two addition to what.
John Babcock: Gil said is what's driving our day.
Speaker Change: Thanks, and then actually just quickly on the GPU front, how should we think about net TPU going through the year Simon it sounds like you're targeting a little bit less than the <unk> level in the first quarter and then some improvement, but as we get to the end of the year that 300 is that more of a gross number or is that a net number or should those two converge.
Speaker Change: Yeah. Thanks, John what we've talked about is the net <unk> number we had in an inflated net D. P. You in Q4 and like I said in my prepared remarks, we will have an inflated number in Q1 and that will work down through the year. We still think we're going to exit the year at sub 300 on a net D Bu basis, so that that's the <unk>.
Speaker Change: <unk> slope.
Speaker Change: Okay. Thank you and then just last question if you don't mind.
Speaker Change: It sounds like the fleet size ended the year about down 7% how do you see the fleet size is trending from here and then also.
Speaker Change: Does this mean you end up you might end up sitting demand beyond the business your intention of giving up associated with the focus on opinion below.
Sandeep Debate: Yeah, John this is sandeep here.
Sandeep Debate: I think overall our plan is to continue to sweat our assets right and and drive higher U through improved demand capture reducing out of service and redoing, reducing the sales cycle time right. So as we can run that playbook Ah I do expect us to have a smaller fleet to capture a given demand.
Sandeep Debate: Right.
Sandeep Debate: Also we have to keep in mind that we were a bit of <unk> in Q1 of 'twenty 'twenty four so if you factor both of those we do expect to have a smaller fleet and in Q1.
Sandeep Debate: And that also goes towards our key commercial objective of maximizing ought to you right now on our way to our two are not some metric off our view about $1500 that being said the way we accomplish all of this is basically ensuring that they are going after durable demand. That's an incredibly important of a concept that we have dial.
Sandeep Debate: And within the commercial team right. So.
Sandeep Debate: We talked a little bit about the improvement in in booking.
Sandeep Debate: Bookings in reservations to Hudson Com, that's very durable demand you talked a bit about the 18% improvement in loyalty enrollments in Q4 year over year and that's that's again durable demand. So we are going after premium high RPT segments, we're going after customers that keep choosing our brands because they love the experience that we deliver.
Sandeep Debate: So that's the playbook, we will keep on following and keep on improving our unit economics, which is basically our focus.
Sandeep Debate: Thanks for all the color.
Speaker Change: Our next question comes from the line of Chris <unk> with Deutsche Bank. Please go ahead.
Speaker Change: Hey, good morning, guys. Thanks for taking the questions.
Speaker Change: I appreciate the the EBITDA cadence and the margin commentary you just provided for 25.
Speaker Change: The question is as we look a little further out is there is there.
Speaker Change: Is there a medium or long term margin at which you think the company should operate at if you get the <unk> down to 300 or less by year end.
Speaker Change: You get Opex optimize.
Speaker Change: I think you've mentioned low thirty's per transaction day.
Speaker Change: Is there any kind of.
Speaker Change: Ground, a rough figure we can think about.
Speaker Change: <unk>.
Speaker Change: Go forward basis after 25, not really asking for a specific year, just a normalized margin the way you might think about it.
Speaker Change: Yeah, Hey, Chris This is Scott I'll start and get will probably want to chime in too, but I think you could use the basis of our northstar metrics to get there I mean, it's the the 1500 R. B U D O in the low thirties and D. D O N. The Luther as D. P. You at sub 300, those will sort of give you our.
Speaker Change: Our sort of target for EBITDA production again. This business is obviously volatile and you know it depends on demand and residual values and those things. So it's really hard to predict and create sort of a floor of EBITDA, but those are our targets and we think they're achievable. So I would just guide you to do the math on those and kind of see where that may end up yeah, I would just add.
Speaker Change: That man I mean, that's kind of the core business. There is there are certainly as we move forward, we want to get those unit economics styled in but there is additional growth opportunities for us clearly in the mobility space in general so well as car sales through the retail channels.
Speaker Change: Okay fair enough. Thanks, Thanks for that and then as a follow up.
Speaker Change: If you are continuing to optimize the business that you that you do take with a with a smaller fleet can you maybe give us a little bit of color on which businesses, you're or which segments of your baby be emphasizing whether that's airport off airport.
Speaker Change: Whether it's the dollar thrifty brands, whether it's.
Speaker Change: Corporate versus leisure.
Speaker Change: There's something else just to try to frame it where the where we can see the revenue growth come from segment wise. Thanks.
Chris Byrd: Yeah, Chris said, if suddenly appear.
Chris Byrd: It's less about airports or says I'll pay for it it's more about certain segments that I just like.
Chris Byrd: I'm going to use the dumb.
Chris Byrd: Pretty low or PD in general and and ones, where the customers not choosing a brand, but going based on price a lot of that is domestic or opaque packages and Ah. That's when I would I would qualify in there.
Chris Byrd: Our segments like that and then there are also certain other segments were across the board, where we've done an exercise of looking at our lowest RPT contribution within each one of those segments and basically called some of that business across across the board as well because it.
It wasn't a contribution margin that'd be we're happy with it.
Speaker Change: Okay very good thanks, guys.
Speaker Change: Our next question comes from the line of Dan Levy with Barclays. Please go ahead.
Speaker Change: Hi.
Speaker Change: Good morning. Thank you for taking my questions I wanted to go back to the.
Speaker Change: The GPU and maybe you could just give us a sense you know versus when you last spoke and you were guiding us to $3 $53 75 for the quarter.
Speaker Change: You said there was it was losses on sale maybe.
Speaker Change: What's the hit doesn't materialize that was below your expectations and I would ask as a follow up.
Speaker Change: With one of your competitors now engaging on and.
Speaker Change: An aggressive sort of rotation of their fleet and potentially another one of your competitors doing so how does that then impact the remaining rotation of your fleet.
Speaker Change: Yeah, I'll start and Scott can maybe add some color you add some color in there on the loss of sales some of that on the fourth quarter is just the volume and timing aspects of the sale coupled with rotating out the older vehicles right. So a large portion of this and what we saw throughout.
Speaker Change: Now almost all of 'twenty four with some of the noise in depreciation as we're selling off the older vehicles rotating the fleet and then on a go forward basis.
Speaker Change: More far better position, because we've got a lower cap costs going in we got a shorter hold period, we're selling through retail channels. So all of that really helps us sustain that to get to and sustain the sub 300 D. P U but we've been doing cleanup work throughout all of last year and some of that will trickle. It will continue.
Speaker Change: Trickle through until we're through the fleet rotation. The heavy list lift has done but there's still some to do.
Speaker Change: Wow.
Speaker Change: I think the the.
Speaker Change: In terms of kind of the supply side of the equation with vehicles again, we've we've already made the big investment with a fleet rotation I mentioned, where 60% of our cars are less than a year old.
Speaker Change: At this point or through at the end of the year. So we'll continue to make progress we've got effectively all our 20 model year 'twenty five buys walked in.
Speaker Change: And those will continue to deliver.
Speaker Change: The model year 'twenty six you know will we will shortly start to look at those and negotiate those but what I would say is we've been you know we've been first to recognize we needed to change the fleet strategy, we've been aggressively pursuing it and we've been accelerating it wherever we could.
Speaker Change: As we've mentioned on prior calls we would look to do that we have so we're positioned I think really well in terms of flexibility as you think about the dynamics going forward. So and Ah. We have you know good fleet. We got the the you know the model year 'twenty fives locked in so as we think about the.
Speaker Change: <unk>.
Speaker Change: We've invested in in the fleet and that gives us flexibility, but then yeah. We think the model going forward certainly as sustainable.
Speaker Change: Yeah, Hey, Dan This is Scott I'll add just a little bit of color. There too I think I think some of the confusion might be a little bit on our side.
Speaker Change: We.
Speaker Change: We were looking at MMR values, I'm, probably miss the drop in the in the fourth quarter.
Speaker Change: And then that's that's that's on US we think that going forward, we have a better grasp of sort of where MMR values will sit we're actually seeing good trending as we went through the year or sorry in entered the 2025 year and going forward values are stabilizing. So we feel good about where that is and where the guidance sits today also too we pulled forward a handful of vehicle.
Speaker Change: <unk> two that were sort of mis timed so they were under depreciated and caused a bit of an outsized.
Speaker Change: Net net debt issue, but I think a lot of this is really sort of unique in nature to the period into us and thats fixed going forward. So we feel good about where the guidance sits on residuals and we've seen them in a pretty good place so far.
Speaker Change: Okay. Thank you as a follow up wanted to ask about cash and liquidity.
Speaker Change: You are saying that it sounds like youre expecting EBITDA to be something above breakeven, but we do know there's a and expenses what can be a costly fleet rotation for you.
Speaker Change: And you do have some calls on your on your cash over the next.
Speaker Change: 18 months.
Speaker Change: Including a large majority in 'twenty six and there is the potential make whole payment.
Maybe you could just run us through some of the cash consideration how expensive. The fleet rotation is and what are your options to maintain a minimum level of cash on the balance sheet is just to draw down the revolver or what other options do you have.
Speaker Change: Yes. So so thanks, Dan I'll give you a little bit of color here, what we can't give you. So we talked about the strong cash balance that we have $1 $8 billion of liquidity.
And then a good portion of that's the the revolver. We have available of about 500 plus million dollars in cash and about one point to 1.3 billion remaining on our revolver. So a strong level of liquidity to start the year I've talked about the the business will probably burn some cash in the first half we will spend money on the fleet rotation.
Speaker Change: And the low point will be in the second quarter and then we'll start to generate cash from the business as we head to the back end of the year and we haven't quantified what that low point is and I'm not prepared to give specific numbers on that today, but I think that's the flow we feel good about but our obligations we have good stock.
Speaker Change: That cash balance we have good balance sheet flexibility, we understand the maturities. So we feel good about where we are obviously as a CFO more cashiers better so I'm always going to be a little bit conservative with cash, but we have good flexibility to manage what lies ahead of us.
Speaker Change: Okay. Thank you.
Our next question will come from the line of Harold <unk> with Jefferies. Please go ahead.
Speaker Change: Hello. This is carolina, so lots of stuff anymore. I guess, you know given the elevated D fleet and you know could you talk about the other things you're looking to dispose. These vehicles, whether that's through the auction process retails.
Speaker Change: Or a company China. So you can just give us a sense for you know what.
Speaker Change: This was an issue.
Speaker Change: You know what issue on the pricing side through these disposals.
Speaker Change: Yes, I mean, the general color around kind of our sales channels right I think directionally.
Speaker Change: Now we want to move towards the higher net margin sales channels were which tend to kind of break from one end of the spectrum, which is auctions to more of a dealer to dealer kind of mix in the middle to more retail and in terms of the higher margin.
Speaker Change: Net sales for so.
Speaker Change: We're you know our strategy is to move.
Speaker Change: Torture.
Speaker Change: Overweight retail channels, we've been working that you know over the last you know at least the last year, making progress, but there's still work to do as I mentioned, you know we run you know less than 10% of our cars through auction at this point.
Speaker Change: And we continue to increase our mix of retail sales, where we and there's two channels of that one is kind of the organic growth through our sales channels and we really want to continue to grow those too.
Speaker Change: Digital experience being able to transact digitally remove the friction for the customer more brand visibility. We've got we've got a footprint now. So we can continue to drive more volume through that but then also we've got some really good strategic partnerships now will add others, hopefully and we will continue to grow those segments.
Speaker Change: As well, Matt some partnerships.
Speaker Change: So.
Speaker Change: I think as we think about that going forward. It's a it's kind of an end to end look ultimately that unlocks are the sub 300 D. P. You were talking about we're also will inform our buy decisions as well obviously, we've got to overlay that with the right fleet mix for our rental business, but.
Speaker Change: And I was trying to work those in concert we're buying vehicles with an eye towards obviously the rental whole period, but then an eye towards what sales are.
Speaker Change: And then through what channels are really key because you know we've got a large fleet of vehicles.
Speaker Change: People are test driving them every day.
Speaker Change: Effectively we could have our whole fleet for sale at any given point in time.
Speaker Change: And we're the way I look at it at least as we're we're almost a used car factory right as I mentioned, we're one of the largest car dealerships in the world. So we have all the necessary ingredients to create value for us.
Speaker Change: Yes.
Speaker Change: Okay. That's great. Thank you for the color and then I guess just for my follow up you know what I wanted to piggyback on that.
Speaker Change: Liquidity question, you know what options do you go to refi, the 2020 six.
Speaker Change: Maturities and then I guess, if you could provide any sense on.
Speaker Change: You improve vehicle choice for customers as you rotate the fleet.
Speaker Change: Are you seeing.
Speaker Change: Is there any change in the sleep medicine.
Speaker Change: Any.
Speaker Change: Embarks on RPT. Thank you.
Speaker Change: Okay.
Speaker Change: I'll start with the first part around I think you were talking about balance sheet flexibility in refinancing.
Speaker Change: Yeah, we as I mentioned before we have we have a good bit of balance sheet flexibility in and we'll look to refinance those obligations as maturities come due <unk> first up is obviously the revolver that we have that comes due in the first half of this year and we're already in discussions addressing that.
Speaker Change: And then we will deal with the remaining ones at the end of <unk>.
Speaker Change: The the year and stay ahead of them going current into 'twenty six but.
Speaker Change: We understand those today and we feel like we're going to have all of those addressed in time.
Speaker Change: And then I think you had a question two around the fleet in car sales mix.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Again, there are some deep here.
Speaker Change: So on the asset.
Speaker Change: Asset class mix essentially out of our intent is always to ensure that what we buy is as close as possible to the customer a generator demand from a cloud perspective right. So that's all of us.
Speaker Change: And that's really a question around the supply that is available from the Oems.
Speaker Change: So.
Speaker Change: That's a constant endeavor and we keep aiming for a better match there.
Speaker Change: The second part of your question around the impact on IPD, there's no material impact on our PD based on that it's more of a GAAP cost concentration. So that's really the metric and play less so RPT.
Speaker Change: Thank you.
Chris Byrd: Our next question comes from the line of Chris <unk> with Susquehanna. Please go ahead.
Speaker Change: Hey, good morning, everyone.
Scott So on the EBITDA guide the cadence for the year, Los <unk> breakeven to two sizable <unk>.
Speaker Change: <unk> <unk> small profit I think you said low single digit adjusted margin for the full year.
Speaker Change: So as we think about the exit rates were for Q.
Speaker Change: On yields D O N D P U.
Speaker Change: To help bridge that versus the targets on the <unk> hundred the low thirties and sub 300.
Speaker Change: We think about the first half of 'twenty six is spring loaded we're sort of back weighted.
Speaker Change: Wanted to understand all the moving parts here, how the revenue and cost initiatives should mature as we exit this year and work into 26. Thanks.
Speaker Change: Yeah, Hey, Chris Thanks for the question I'll start and maybe Gil Sandeep want to chime in on some of the others, but I think you know we're not we're not here at officially give guidance on specific numbers for Q4 or four twenty-six either but I think directionally you can imagine that the north star targets will will move directionally towards that we've already said D. P U.
Speaker Change: We think we'll exit in that sub 300 range. You know, we think we're going to make progress on our P. You as we go through the year. So we will move closer to that 1500, our <unk> target I I think the one that's going to be a little more difficult in the short run given the headwinds that I.
Speaker Change: About in my prepared remarks is going to be low thirties D. O E, especially as we are a little bit smaller year over year in terms of fleet size.
Speaker Change: And it makes it a little more difficult to accelerate that to the low thirties target, but I'd say I think all in all we're making good progress on all three of them. You know the good news is that D. P. You, which is the one we have the most visibility on is the biggest mover of our financial metrics from an EBITDA perspective.
Speaker Change: And we have confidence in that but I think by the end of the year. You know we'll have good clarity on where the other two set we'll reserve then at that point, but we feel good about the exit rate for twenty-five heading into 'twenty six.
Speaker Change: Okay and as a follow up.
Speaker Change: Gil your thoughts on on the tariffs I realize it's a.
Speaker Change: Still early here it would seem that if new vehicle prices move higher or there could be demand for secondary or used which would typically be good for residual values.
Speaker Change: And hurts any thoughts or.
Speaker Change: Or how youre thinking about the tariffs at this point. Thanks, yeah. Thanks, Thanks, Chris Yeah, obviously top of mind for us.
Speaker Change: Of course, you know I think it's.
Speaker Change: I mean, it's a fluid situation right in all likelihood temporary by nature, but you know the dynamics are.
Speaker Change: Are breaking different ways.
Speaker Change: I I would just start by saying I think you know for Hertz were largely insulated and I think it's it's a it's a result of all the work we've done really trying to working towards transforming forming hurts specifically around the fleet strategy as I kind of mentioned earlier, we're well.
Speaker Change: Positioned in the short run because you know the strategy we've taken with fully.
Speaker Change: <unk> will pay dividends in any real trade environment. So we've made significant investments already in the fleet and progress towards our fleet rotation and then in turn that gives us a lot of flexibility to manage through the current period of uncertainty. So we've locked in additional vehicles already.
Speaker Change: As I mentioned, you know and then as we're taking those and then we look for model year 'twenty sixes, we've got a diversified supply chain of course and all that.
Speaker Change: That won't change to the tariffs.
Speaker Change: But on a macro basis as you mention if tariffs have a resulting increase in new car prices. The counterbalances likely residual values will go up which will help our business model, but we're yeah. We've we made so much progress on our fleet rotation and what's what's coming in the first half already locked in.
Speaker Change: In that we've got a lot of flexibility to manage through the environment.
Speaker Change: Okay. Thank you.
Speaker Change: Our final question will come from the line of Ian Zaffino with Oppenheimer. Please go ahead.
Speaker Change: Hey, Good morning. This is <unk> on for Ian Thanks for taking our questions.
Speaker Change: Had one follow up on the comments around T O.
Speaker Change: Are you able to provide any additional details on the puts and takes for the full year.
Speaker Change: There's a I guess, a few moving pieces with the operational initiatives.
Speaker Change: Rotations and I guess, some cost headwinds on insurance side.
Speaker Change: And I guess is there anything incremental on the operational side that could help offset some of those cost headwinds.
Speaker Change: Yeah, Hey, Hey, Isaac This is Scott I'll start I think I can give you a little bit of color around the categorical nature of it probably not numerically from a guidance perspective, but you know we've talked about the things that are working you know obviously the core operating components of the business are moving in the right direction.
Speaker Change: Labor maintenance collision supply chain rental ops all of those are moving directionally, where we need them to go we haven't we do have a few headwinds that are that we're facing that we are addressing them that are a little different some accounting changes some related to insurance that will have a lag effect on some of the.
Speaker Change: <unk> that we put in place so I.
Speaker Change: I think that's the sort of backdrop. The initiatives are working obviously, we got to drive utilization as I said a critical piece of this is making sure we get the units, but I think the initiatives that we have in place are all working we're seeing real benefit from the newer cars in the fleet.
Speaker Change: All of those things are good platforms, we just have to address their peripheral components of the business.
Speaker Change: Okay understood. Thank you.
Speaker Change: This concludes the Hertz Global Holdings fourth quarter 2024 earnings Conference call. Thank you for joining you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
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