Hertz Global Holdings, Inc Common Stock 2026 Q2 Earnings Call

Good morning, everyone, and thank you for joining us. I want to begin by saying thanks to the Hertz team. Quarter after quarter, their discipline and execution are what turn strategy into results. We are halfway through 2026, and it's been more than two years since I stepped into this role. In that time, I had the chance to get into the detail of every part of this business, the fleet, the operations, and the economics that drive them. What's become clear is that this transformation is about both fixing what wasn't working and building for what's next. We've done that under real pressure. Over these two years, we've navigated tariffs, vehicle recalls, inflation, partial government shutdown, elevated TSA wait lines, and storm disruptions on top of the normal volatility of the rental car industry. None of it has changed our approach.

We're staying focused on what we can control, our fleet, our cost, our revenue performance, and the customer experience we deliver. Through disciplined execution, we're building a financial footing strong enough to withstand whatever pressures today and tomorrow bring. We're both running our core rental business better and building a platform spanning rent-a-car, fleet, service, and mobility that diversifies and strengthens Hertz for the future. This quarter is more proof of that progress, where our disciplined execution is showing up in our results. Led by our continued commercial momentum, revenue was up 6% year-over-year with a 1% smaller fleet and came in ahead of both consensus and our latest guidance. By continuing to sweat the assets and increasing total fleet utilization by 80 basis points to 79%, we achieved this despite elevated recalls compared to the year before.

This performance was driven by our strongest second quarter RPD on record, excluding the peak COVID year of 2022. RPD was up 9%, and RPU was up 8% versus last year. Coming in at $1,542, RPU exceeded our North Star target, and we saw sequential improvements in both throughout the quarter. Adjusted corporate EBITDA came in at $81 million, a $63 million year-over-year improvement and above our latest guidance, driven primarily by an even stronger RPD in June than we anticipated. We continue to execute on our annual DPU North Star target through our disciplined rotation strategy that is defined by our buy right, hold right, and sell right approach. At $302, DPU remains in line with target. However, we did experience three quarter-specific items that caused the total gain on sale to be lower than originally expected.

First, the seasonal decline was more pronounced than we anticipated as wholesale volume temporarily outpaced demand. Second, our disposition channels were not as optimal as we would like given the volume of cars we sold. Third, during the quarter, we altered the mix of vehicles and prioritized older and certain models. These dynamics temporarily drove down the proceeds from sale, resulting in a lower gain on sale. However, this didn't impact our go-forward view. The seasonally adjusted Manheim Used Vehicle Value Index increased 3.5% month-over-month in July, recovering from the declines experienced during the second quarter and remaining strong, up 6.1% year-over-year. The used car market is good, and we're set up well for it. At the end of Q2, our model year 25 and 26 units made up nearly 94% of our U.S. core fleet.

We believe we have an exceptionally healthy fleet. We expect DPU will benefit as we rotate out of those vehicles over the coming quarters. Turning to cost, total DOE per day increased slightly, primarily driven by costs that were both revenue related and were margin accretive, associated with stronger RPD performance. This brings me to a broader point. The North Star metrics have given our teams a steady compass over the last two years. As the business evolves, it's important to recognize that these metrics do not operate in isolation. As revenue grows, a portion of our DOE naturally grows alongside it. Many of those costs are tied to higher revenue and stronger profitability. As a result, we're also increasingly focused on the relationship between those metrics, and we expect our performance framework to evolve as our transformation continues.

While DOE was higher, our RPD to DOE per day spread improved by 17% year-over-year. It was our third consecutive quarter of year-over-year spread expansion. We remain extremely focused on managing core operating costs. The improvements we're seeing are the result of productivity initiatives encompassing people, processes, and technology. One of our biggest levers we have is labor productivity. Supported by Palantir, our new labor planning model aligns staffing with real-time demand, reducing overtime, third-party labor, and improving workforce planning. We're also leveraging technology and AI-driven data insights to improve throughput and productivity across our operations to reduce our vehicle turnaround time. Additionally, we're making progress in leveraging our supply chain network, expanding part-out capabilities, strengthening collections recovery, and improving maintenance processes, all to drive greater productivity with existing resources while lowering unit costs.

Although these results demonstrate the progress we've made in strengthening the economics of the business, recalls remain a significant headwind. Recall volume was up 300% in Q2 from the year prior, impacting an average of 15,000 vehicles per month. Across the first half of 2026, recalls represented more than a $55 million EBITDA impact. We're pursuing regulatory, operational, and contractual solutions to address this issue. More importantly, our ability to deliver this level of performance despite that headwind reinforces our confidence in the path to our long-term targets. That said, while 2027 and $1 billion of adjusted corporate EBITDA are important milestones, they're not the final destination. As we've shared, we focused on something bigger. We are applying our commercial, operational, and fleet management capabilities across the four strategic areas of our platform to drive greater efficiency, create diversified growth engines, and strengthen the company for the future.

Our platform is the unlock to the next phase of value creation, de-leveraging the balance sheet, and growth. One of the greatest opportunities to grow is by more effectively leveraging the power of the Hertz brand. Hertz is an iconic, century-old brand recognized the world over. It's one of the most valuable assets with a strong reputation that we believe is under-monetized today. One way that we think we can use the power of our brand is in franchising. It is a strong asset-light, capital-efficient part of our business with attractive and predictable economics. It's not new either. Today, more than 25% of the Hertz-branded revenue is generated by franchises. However, we haven't grown it in years. It hasn't received the level of focus necessary to realize its full potential.

We're now changing that, and we're evaluating near-term opportunities across the global footprint through both white space expansion and conversion activity, and thinking strategically about whether Hertz should look more like our partners in the hotel industry. If our goal is to achieve higher quality earnings, stronger free cash flow conversion, more durable shareholder returns, and improved balance sheet, franchising is there. In the next area of our platform, fleet, we are building on our unique competitive advantage of one of the largest used car dealers in the country, enhancing the capabilities of our used car factory. We're continuing our journey of moving from primarily wholesale disposition towards more lucrative channels. We expect that expanding our ability to move additional car sales volume through these higher-yielding channels will have a significant effect on net DPU, and we're working to unlock those opportunities.

We're exploring how we build strategic relationships with the leading used car companies, creating more mutual value and structurally reducing our cost of sale, alongside new partnerships with best-in-class retailers. We also continue to make progress on our direct retail channel. Wins this quarter included growing direct retail sales volumes, reducing reconditioning costs, delivering strong F&I performance. In mobility, Oro is gaining momentum. For over a century, Hertz has mastered the ability to operate complex fleets reliably, efficiently, and at scale. Today, Oro is extending those capabilities to a new era of mobility, filling a critical gap in the industry's transition towards commercially operated, driver-led, and autonomous fleets. The capabilities we built, from acquisition and financing to efficient fleet management and maintenance, would be incredibly difficult and costly to replicate from scratch today.

We're putting those capabilities to work through Oro's driver-led business model, where we own, maintain, and operate vehicles on rideshare platforms. Oro is now active on the Uber platform in four markets, Atlanta, Los Angeles, San Francisco, and Northern New Jersey. We've expanded into these new offerings on the app, including Uber Black in New Jersey and Uber for Business in San Francisco and Los Angeles. Our drivers have logged more than 6 million miles to date. This business validates our ability to deliver high-quality and turnkey fleet solutions safely and at scale, supporting an enhanced customer experience. At the same time, we're developing the operations, processes, systems, and infrastructure that directly translate to operating AVs at scale. Earlier this year, we announced our first AV partnership with Uber's robotaxi program, supporting Lucid vehicles equipped with Nuro autonomous technology.

We're on track to begin operations later this year in the San Francisco Bay Area. We continue to see encouraging traction as we scale this part of the business. Oro already has meaningful scale and momentum. Through these offerings and the existing rideshare rental business, we expected to generate more than $600 million in total revenue this year with the ability to grow dramatically over the next decade. Opportunities for expanding capabilities, new partnerships, and new avenues for value creation are emerging, and we're focusing our resources on unlocking that growth. This quarter is an exciting proof point in Hertz transformation. We're making tangible progress across the business, and we're focused on execution and accelerating the improvements ahead of us. As I look at the quarter, there are four key takeaways I'd highlight. First, our core rental car business continues to improve, and our commercial momentum is strong.

The actions we’ve taken over the last two years are driving better unit economics, creating a clearer path to stronger margins, and potentially more than $1 billion of adjusted corporate EBITDA run rate in 2027 and beyond. Second, our fleet buy right, hold right, sell right strategy should continue to yield strong near-term results and solidify our ability to deliver net DPU below $300 per month. Third, our strategy to expand the franchise portion of the rental car business has the potential to accelerate that progress. We see it as a way to generate consistent earnings, strengthen free cash flow, unlock liquidity for growth initiatives, and ultimately create a more durable value for shareholders whilst also supporting de-leveraging. Finally, Oro may be new, but it is rapidly emerging as a meaningful growth platform.

We believe it will continue to scale in revenue this year across all of its business lines, and we have a plan in place that we think can reshape Hertz growth trajectory for years to come. The opportunities in front of us are significant. We’re encouraged by the momentum across the business and the opportunities ahead. Ultimately, results speak louder than words, and we’re focused on continuing to execute and demonstrating that progress quarter after quarter. With that, I’ll turn it over to Sandeep.