HERTZ GLOBAL HOLDINGS, INC Q4 FY2023 earnings call

• Cost challenges in Q4 were a continuation of 2023 issues, but demand and rate environment remained stable. - Strategic decision to sell a portion of the EV fleet expected to have material positive consequences on adjusted corporate EBITDA and cash flow over the next two years, reducing operational distraction. - Productivity initiatives focus on five core areas: staffing and third party spend, footprint reduction by exiting underperforming locations, attacking operating costs and improving field productivity, procurement centralization, and technology modernization. - Progress on initiatives like Rideshare, where revenue grew 75% in 2023, and improvements in international business and value brand websites.

In the fourth quarter, revenue was $2.2 billion, in line with expectations, up 7% year-over-year. Revenue per day was $58.09, better than expected. Fourth quarter adjusted EBITDA was a loss of $382 million, including $245 million of incremental net depreciation expense from the EV sales plan. For 2023, revenue was $9.4 billion, up 8% year-over-year. Adjusted EBITDA was $561 million. The revenue contribution from various segments wasn't explicitly broken down by percentage in the transcript, but key focus was on the overall performance including rental car operations, Rideshare, and other brand initiatives.

• 2024 is expected to be a transitional year, with the goal of regaining operational cadence and improving financial performance into 2025. - Expect $250 million in cost benefit in 2024 from productivity initiatives. - Benefits from the strategic EV fleet sale expected to improve adjusted corporate EBITDA and cash flow over the next two years. - Anticipate improved financial performance with increasing effect into 2025.

• Elevated collision and damage costs, largely driven by running the EV fleet and impact on operational efficiency. - Residual value fluctuations affecting vehicle carrying costs. - Potential challenges in executing cost reduction and productivity initiatives as planned.

Q: Since the announcement of the planned reduction in the EV fleet, at what point do you evaluate progress and what markers would cause acceleration?

A: Assessment is ongoing based on ROIC, considering reduction in fleet carrying cost, lower operating costs, and enhanced revenue from deploying fewer cars at higher utilization. If returns on the remaining EV fleet don't meet expectations, further action on the fleet size may be taken.

Q: How are you thinking about fleet sourcing for backfilling EV sales with ICE cars?

A: Part of the 15,000 ICE cars to backfill will come from redeploying vehicles from unprofitable network locations, lower out-of-service levels, and managing between purchases and sales based on return profile.

Q: What is your view on the normalized EBITDA number and the cost savings?

A: Separate out EBITDA benefit from EV sale ($250 million over two years) and focus on $500 million EBITDA addition from projects, yield, and cost. $250 million of the $500 million is from productivity and cost out in 2024.

Q: What does 'transitional year' mean and potential impact on covenants?

A: 2024 is a transitional year where steps like EV fleet sale and cost reduction initiatives are taken to set up a clearer path to reconcile cost structure with strong revenue. Confidence in not being in a position where covenants come into play, with expectation of improved financials into 2025.

Q: Thoughts on EV and ride hailing businesses?

A: Long-term proposition is good, but initial financial model was affected by higher depreciation, elevated damage, and MSRP changes. Need to rotate cars in the business to improve profitability.

Q: Cadence of cost savings initiatives in 2024?

A: EV depreciation and cost reduction from EV sales start to materialize quickly. Some cost out initiatives like third-party spend have immediate benefit, while others like network actions and field productivity tools have a ramp-up with benefits compounding in the back half of the year.

Q: Impact of Tesla recall on business?

A: Follow all recalls and comply with rules, with Tesla recalls typically being over-the-air software adjustments, easier to execute.

Q: Dimensioning repair cost step-down and dollar savings in 2024?

A: Repair costs should trend lower, with reduction in problematic EVs having a greater effect on the balance of the remaining EV fleet. The spillover effect on broader costs from EV challenges was addressed by the bold action of reducing the EV fleet.

Q: Normalized earnings power and drivers of improvement?

A: Need to pull back the benefit of the EV sale and focus on achievement of $500 million EBITDA addition. Confidence in cost out and productivity gains. Stability in travel growth, no embedded incentive for competitors to lower rates, and structural factors in the used car market are positive drivers.

Q: Thinking about RPD prioritization and stability?

A: Prioritize RPD over utilization by holding supply of cars inside expected demand, not chasing low-quality demand. No embedded incentive for competitors to lower rates, and stability in travel growth supports stable RPD.

Q: EV purchases and agreements?

A: Generally, OEM agreements are broad and commitments aren't final until model year. The company is net lower in EV purchases for 2024 based on the EV sale and minimal new EV acquisitions.

Q: Finer points on $250 million cost savings areas and potential upside?

A: Internal plans target higher cost savings, with benefits dropping through as committed. Further clarity and updates will be provided in future calls on the makeup of the $250 million cost out.

Q: Thoughts on second half demand outlook and return to office?

A: Return to office can benefit corporate demand. Second half optimism tied to macroeconomic trends like lower inflation, lower interest rates, and positive factors in the used car residual market.