Total cash and cash equivalents and restricted cash and cash equivalents
905
1,206
Receivables:
Vehicle
406
211
Non-vehicle, net of allowance of $54 and $47, respectively
934
980
Total receivables, net
1,340
1,191
Prepaid expenses and other assets
927
726
Revenue earning vehicles:
Vehicles
13,543
16,806
Less: accumulated depreciation
(308)
(2,155)
Total revenue earning vehicles, net
13,235
14,651
Property and equipment, net
639
671
Operating lease right-of-use assets
2,033
2,253
Intangible assets, net
2,856
2,863
Goodwill
1,044
1,044
Total assets(1)
$
22,979
$
24,605
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable:
Vehicle
$
131
$
191
Non-vehicle
493
510
Total accounts payable
624
701
Accrued liabilities
1,176
860
Accrued taxes, net
222
157
Debt:
Vehicle
12,303
12,242
Non-vehicle
4,653
3,449
Total debt
16,956
15,691
Public Warrants
181
453
Operating lease liabilities
2,021
2,142
Self-insured liabilities
559
471
Deferred income taxes, net
559
1,038
Total liabilities(1)
22,298
21,513
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, no shares issued and outstanding
—
—
Common stock, $0.01 par value, 481,324,312 and 479,990,286 shares issued, respectively, and 306,512,268 and 305,178,242 shares outstanding, respectively
5
5
Treasury stock, at cost, 174,812,044 and 174,812,044 common shares, respectively
(3,430)
(3,430)
Additional paid-in capital
6,380
6,405
Retained earnings (Accumulated deficit)
(2,023)
360
Accumulated other comprehensive income (loss)
(251)
(248)
Total stockholders' equity
681
3,092
Total liabilities and stockholders' equity
$
22,979
$
24,605
(1) Hertz Global Holdings, Inc.'s consolidated total assets as of September 30, 2024 and December 31, 2023 include total assets of variable interest entities (“VIEs”) of $2.0 billion and $1.7 billion, respectively, which can only be used to settle obligations of the VIEs. Hertz Global Holdings, Inc.'s consolidated total liabilities as of September 30, 2024 and December 31, 2023 include total liabilities of VIEs of $2.0 billion and $1.7 billion, respectively, for which the creditors of the VIEs have no recourse to Hertz Global Holdings, Inc. See "Pledges Related to Vehicle Financing" in Note 7, "Debt," for further information.
The accompanying notes are an integral part of these financial statements.
Total cash and cash equivalents and restricted cash and cash equivalents
905
1,206
Receivables:
Vehicle
406
211
Non-vehicle, net of allowance of $54 and $47, respectively
934
980
Total receivables, net
1,340
1,191
Prepaid expenses and other assets
926
725
Revenue earning vehicles:
Vehicles
13,543
16,806
Less: accumulated depreciation
(308)
(2,155)
Total revenue earning vehicles, net
13,235
14,651
Property and equipment, net
639
671
Operating lease right-of-use assets
2,033
2,253
Intangible assets, net
2,856
2,863
Goodwill
1,044
1,044
Total assets(1)
$
22,978
$
24,604
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable:
Vehicle
131
$
191
Non-vehicle
493
510
Total accounts payable
624
701
Accrued liabilities
1,176
860
Accrued taxes, net
222
155
Debt:
Vehicle
12,303
12,242
Non-vehicle
4,653
3,449
Total debt
16,956
15,691
Operating lease liabilities
2,021
2,142
Self-insured liabilities
559
471
Deferred income taxes, net
562
1,041
Total liabilities(1)
22,120
21,061
Commitments and contingencies
Stockholder's equity:
Common stock, $0.01 par value, 3,000 shares authorized and 100 shares issued and outstanding
—
—
Additional paid-in capital
4,583
4,610
Retained earnings (Accumulated deficit)
(3,474)
(819)
Accumulated other comprehensive income (loss)
(251)
(248)
Total stockholder's equity
858
3,543
Total liabilities and stockholder's equity
$
22,978
$
24,604
(1) The Hertz Corporation's consolidated total assets as of September 30, 2024 and December 31, 2023 include total assets of VIEs of $2.0 billion and $1.7 billion, respectively, which can only be used to settle obligations of the VIEs. The Hertz Corporation's consolidated total liabilities as of September 30, 2024 and December 31, 2023 include total liabilities of VIEs of $2.0 billion and $1.7 billion, respectively, for which the creditors of the VIEs have no recourse to The Hertz Corporation. See "Pledges Related to Vehicle Financing" in Note 7, "Debt," for further information.
The accompanying notes are an integral part of these financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 1—Background
Hertz Global Holdings, Inc. ("Hertz Global" when including its subsidiaries and VIEs and "Hertz Holdings" when excluding its subsidiaries and VIEs) was incorporated in Delaware in 2015 to serve as the top-level holding company for Rental Car Intermediate Holdings, LLC, which wholly owns The Hertz Corporation ("Hertz" and interchangeably with Hertz Global, the "Company"), Hertz Global's primary operating company. Hertz was incorporated in Delaware in 1967 and is a successor to corporations that have been engaged in the vehicle rental and leasing business since 1918.
Hertz operates its vehicle rental business globally primarily through the Hertz, Dollar and Thrifty brands from company-operated and franchisee locations in the United States ("U.S."), Europe, Africa, Asia, Australia, Canada, the Caribbean, Latin America, the Middle East and New Zealand. The Company also sells vehicles through Hertz Car Sales.
Note 2—Basis of Presentation and Recently Issued Accounting Pronouncements
Basis of Presentation
This Quarterly Report on Form 10-Q ("Quarterly Report") combines the quarterly reports on Form 10-Q for the quarterly period ended September 30, 2024 of Hertz Global and Hertz. Hertz Global consolidates Hertz for financial statement purposes and, therefore, disclosures that relate to activities of Hertz also apply to Hertz Global. In the sections that combine disclosure of Hertz Global and Hertz, this report refers to actions as being actions of the Company, or Hertz Global, which is appropriate because the business is one enterprise and Hertz Global operates the business through Hertz. When appropriate, Hertz Global and Hertz are named specifically for their individual disclosures and any significant differences between the operations and results of Hertz Global and Hertz are separately disclosed and explained.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”). In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The Company's vehicle rental operations are typically a seasonal business, with decreased levels of business in the winter months and heightened activity during the spring and summer months for the majority of countries where the Company generates revenues.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes. Actual results could differ materially from those estimates.
The December 31, 2023 unaudited condensed consolidated balance sheet data is derived from the audited financial statements at that date but does not include all disclosures required by U.S. GAAP. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Form 10-K"), as filed with the Securities and Exchange Commission ("SEC") on February 12, 2024.
Principles of Consolidation
The unaudited condensed consolidated financial statements of Hertz Global include the accounts of Hertz Global, its wholly owned and majority owned U.S. and international subsidiaries and its VIEs, as applicable. The unaudited condensed consolidated financial statements of Hertz include the accounts of Hertz, its wholly owned and majority owned U.S. and international subsidiaries and its VIEs, as applicable. The Company consolidates a VIE when it is
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited
deemed the primary beneficiary of the VIE. All significant intercompany transactions have been eliminated in consolidation.
Recently Issued Accounting Pronouncements
Not yet adopted
Improvements to Reportable Segment Disclosures
In November 2023, the Financial Accounting Standards Board ("FASB") issued guidance that modifies segment reporting disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The guidance is effective for annual periods beginning after December 15, 2023 and interim periods beginning after December 15, 2024 using a retrospective transition method. Early adoption is permitted. The Company will adopt the guidance when it becomes effective and will include the required disclosures in its Annual Report on Form 10-K for the year ending December 31, 2024.
Improvements to Income Tax Disclosures
In December 2023, the FASB issued guidance to enhance income tax disclosures related to, among other items, rate reconciliation and income taxes paid. The guidance is effective for annual periods beginning after December 15, 2024 using a prospective transition method. Early adoption and/or retrospective application are permitted. The Company intends to adopt the guidance when it becomes effective using a retrospective application and will include the required disclosures in its Annual Report on Form 10-K for the year ending December 31, 2025.
Note 3—Long-Lived Assets Impairment
During the third quarter of 2024, at the conclusion of the Company’s historical peak rental season, there was a reduction in the cash flow projections in the Americas RAC and International RAC segments, indicating that the carrying values of their long-lived assets may not be recoverable. The reduction was largely attributed to the acceleration of the rental fleet rotation in the segments, where shortening the useful life reduced the potential future cash flows expected to be earned from the fleet. Operating cash flow projections also deteriorated from delayed timing of operating cost improvements and longer timeframes associated with revenue maximization initiatives. As a result, the Company tested the recoverability of its long-lived assets, consisting of revenue earning vehicles, right-of-use (“ROU”) assets and property and equipment (collectively, the “Long-Lived Assets”) in its Americas RAC and International RAC segments by comparing the carrying values against undiscounted future cash flow projections and determined that an impairment existed.
Effective August 31, 2024, the Long-Lived Assets were written down to their estimated fair values. The fair value for revenue earning vehicles was determined using a market approach utilizing prices for similar assets in active markets. Fair value for ROU assets was determined using a discounted cash flow income approach considering estimated market rent. The fair value for property and equipment was determined using a market approach, where available, and where not available, a cost approach utilizing estimated replacement cost. This resulted in recognizing impairment charges of $923 million and $125 million against the Company's revenue earning vehicles and ROU assets, respectively. No impairment was recognized for property and equipment assets. The total impairment charge of $1.0 billion is recorded in Long-Lived Assets impairment in the accompanying unaudited condensed consolidated statement of operations for the three and nine months ended September 30, 2024, of which $865 million and $183 million related to the Americas RAC and International RAC segments, respectively. As the Long-Lived Assets impairment was recognized as of August 31, 2024, depreciation expense during the third quarter of 2024 included two months of depreciation at pre-impairment rates and one month at post-impairment rates.
To the extent there are further changes in market conditions or the performance of the Company's long-lived assets, there is a possibility that the Company could incur additional impairments in the future.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited
Note 4—Divestitures
Sales of Non-vehicle Capital Assets
In 2019, the Company substantially completed the sale of certain non-vehicle capital assets constituting real property, in an eminent domain proceeding, in its Americas RAC segment. In February 2023, the Company received additional cash from the sale upon final resolution of the eminent domain proceeding and recognized an additional $29 million pre-tax gain on the sale, which is included in (gain) on sale of non-vehicle capital assets in the accompanying unaudited condensed consolidated statement of operations for the nine months ended September 30, 2023.
In March 2023, the Company sold and leased back its Los Angeles, California airport location in its Americas RAC segment. The transaction qualified for sale-leaseback accounting. The Company recognized a pre-tax gain of $133 million based on the difference in the sale amount of $143 million less $9 million net book value of assets sold and $1 million in selling costs, which is included in (gain) on sale of non-vehicle capital assets in the accompanying unaudited condensed consolidated statement of operations for the nine months ended September 30, 2023. The leaseback is classified as an operating lease with a term of 36 months.
Note 5—Revenue Earning Vehicles
The components of revenue earning vehicles, net are as follows:
(In millions)
September 30, 2024
December 31, 2023
Revenue earning vehicles
$
13,133
$
16,164
Less accumulated depreciation
(308)
(2,155)
12,825
14,009
Revenue earning vehicles held for sale, net(1)
410
642
Revenue earning vehicles, net(2)
$
13,235
$
14,651
(1) Represents the carrying amount of vehicles classified as held for sale as of the respective balance sheet date, including the EV Disposal Groups, as defined and disclosed below.
(2) As of September 30, 2024, includes an impairment charge recognized against the Company's revenue earnings vehicles in the third quarter of 2024. See Note 3,"Long-Lived Assets Impairment," for further details.
Depreciation of revenue earning vehicles and lease charges, net includes the following:
Three Months Ended September 30,
Nine Months Ended September 30,
(In millions)
2024
2023
2024
2023
Depreciation of revenue earning vehicles
$
827
$
483
$
2,355
$
1,337
(Gain) loss on disposal of revenue earning vehicles(1)
97
10
555
(146)
Rents paid for vehicles leased
13
8
31
20
Depreciation of revenue earning vehicles and lease charges, net
$
937
$
501
$
2,941
$
1,211
(1) Includes the write-down to fair value for vehicles classified as held for sale, including the EV Disposal Groups as defined and disclosed below, for the nine months ended September 30, 2024.
Electric Vehicles Held for Sale
In December 2023, the Company identified a group of electric vehicles ("EVs") in the Americas RAC segment (the "First EV Disposal Group") that it desired to sell. In March 2024, the Company identified an incremental group of
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited
EVs in the Americas RAC and International RAC segments (together with the First EV Disposal Group, the "EV Disposal Groups") that it also desired to sell. The EV Disposal Groups were in response to management's determination that the supply of EVs exceeded customer demand, elevated EV damage and collision costs, and a decline in EV residual values. As a result, the EV Disposal Groups were classified as held for sale. As of September 30, 2024, the sale of the EV Disposal Groups was approximately 95% complete. During the nine months ended September 30, 2024, the Company incurred incremental charges, primarily in the first half of 2024, of $176 million for the write-down on the vehicles, of which $165 million and $11 million are associated with the Americas RAC and International RAC segments, respectively, and $47 million for losses incurred on the vehicles sold, primarily in the Americas RAC segment, which amounts are included in depreciation of revenue earning vehicles and lease charges, net in the accompanying unaudited condensed consolidated statement of operations. The remaining, unsold portion of the EV Disposal Groups had an aggregate carrying value of $27 million and is included in revenue earning vehicles, net in the accompanying unaudited consolidated balance sheet as of September 30, 2024, of which $18 million and $9 million were associated with the Americas RAC and International RAC segments, respectively. The aggregate carrying value of the First EV Disposal Group of $542 million is included in revenue earning vehicles, net in the accompanying unaudited condensed consolidated balance sheet as of December 31, 2023. The Company expects to complete the sale of the EV Disposal Groups, primarily through its standard disposition channels, by the end of 2024.
Note 6—Goodwill and Intangible Assets, Net
Recoverability of Goodwill and Indefinite-lived Intangible Assets
As of September 30, 2024, the Company tested the recoverability of its goodwill and indefinite-lived intangible assets due to the impact related to the reduction in the cash flow projections in the Americas RAC and International RAC segments. The quantitative fair value test utilized the Company's most recent cash flow projections, including a range of potential outcomes, along with a long-term growth rate of 2% and a range of discount rates between 20.0% and 12.0%. Based on the quantitative tests, no impairments were recorded in the third quarter of 2024. However, the fair value of the Dollar and Thrifty tradename, which is an indefinite-lived intangible asset, in the Company's Americas RAC segment was in excess by 12% of the carrying values of $934 million.
Further deterioration in the Company’s cash flow projections or the weighted average cost of capital assumptions may result in an impairment charge to earnings in future quarters. The Company will continue to closely monitor actual results versus its expectations and the resulting impact to its assumptions about future estimated cash flows and the weighted average cost of capital. If the Company's expectations of the operating results, both in magnitude or timing, do not materialize, or if its weighted average cost of capital increases, the Company may be required to record goodwill and indefinite-lived intangible asset impairment charges, which could be material.
Note 7—Debt
The Company's debt, including its available credit facilities, consists of the following ($ in millions) as of September 30, 2024 and December 31, 2023:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited
(1) As a result of the bifurcated Exchange Feature, as defined and disclosed below, the Exchangeable Notes had an effective interest rate of approximately 14.4% as of September 30, 2024.
(2) Other non-vehicle debt is primarily comprised of $2 million and $1 million in finance lease obligations as of September 30, 2024 and December 31, 2023, respectively.
(3) Includes approximately $9 million of unamortized debt issuance costs associated with the Exchangeable Notes as of September 30, 2024.
(4) Maturity reference is to the earlier "expected final maturity date" as opposed to the subsequent "legal final maturity date." The expected final maturity date is the date by which Hertz and investors in the relevant indebtedness originally expect the outstanding principal of the relevant indebtedness to be repaid in full. The legal final maturity date is the date on which the outstanding principal of the relevant indebtedness is legally due and payable in full.
(5) Other vehicle debt is primarily comprised of $101 million and $104 million in finance lease obligations as of September 30, 2024 and December 31, 2023, respectively.
Non-Vehicle Debt
First Lien Credit Agreement
In April 2024, the credit agreement governing the First Lien RCF (the "First Lien Credit Agreement"), which requires Hertz to comply with a financial covenant consisting of a ratio of first lien debt to Consolidated EBITDA ("the First Lien Ratio"), as defined within the First Lien Credit Agreement and may be materially different than Adjusted Corporate EBITDA presented in Part I, Item 2 of this Quarterly Report, was amended ("Amendment No. 8") to require a ratio of less than or equal to 5.0x in the second and third quarters of 2024 and 4.75x in the fourth quarter of 2024 and the first quarter of 2025. Amendment No. 8 also contains a minimum liquidity covenant of $400 million for each month ending in the second and third quarters of 2024 and $500 million for each month ending in the fourth quarter of 2024 and the first quarter of 2025. Liquidity as defined in the First Lien Credit Agreement may be materially different than corporate liquidity presented in Part I, Item 2 of this Quarterly Report. Amendment No. 8 also adds certain limitations on Restricted Payments and Permitted Investments (each as defined in the First Lien Credit Agreement). Under the terms of Amendment No. 8, the increased First Lien Ratio, minimum liquidity covenant, and limitations on Restricted Payments and Permitted Investments will sunset on the first day of the second quarter of 2025.
In July 2024, consistent with obligations arising from the issuance of the First Lien Senior Notes and the Exchangeable Notes, as disclosed below, Hertz Holdings entered into a parent guarantee agreement with the administrative agent for the First Lien Credit Agreement. Prior to the issuance of each of the First Lien Senior Notes and the Exchangeable Notes, Hertz Holdings did not guarantee the obligations under the First Lien Credit Agreement.
First Lien Senior Notes
In June 2024, Hertz issued $750 million in aggregate principal amount of 12.625% First Lien Senior Secured Notes due 2029 (the "First Lien Senior Notes"), which are guaranteed by Hertz Holdings, Rental Car Intermediate Holdings, LLC and each of Hertz’s direct and indirect U.S. subsidiaries that are guarantors under the First Lien Credit Agreement. The First Lien Senior Notes bear interest payable semi-annually in arrears on January 15 and July 15 of each year, beginning in January 2025. The First Lien Senior Notes mature in July 2029.
Exchangeable Notes
In June 2024, Hertz issued $250 million in aggregate principal amount of 8.000% Exchangeable Senior Second-Lien Secured PIK Notes due 2029 (the “Exchangeable Notes”), which are guaranteed by Hertz Holdings, Rental Car Intermediate Holdings, LLC and each of Hertz’s direct and indirect U.S. subsidiaries that are guarantors under the First Lien Credit Agreement. The Exchangeable Notes bear paid-in-kind ("PIK") interest payable semi-annually in arrears on July 15 and January 15 of each year, beginning in January 2025. The Exchangeable Notes mature in July 2029 (the "Maturity Date"), unless repurchased, redeemed or exchanged (the "Exchange Feature"), in accordance with their terms prior to the Maturity Date.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited
Prior to April 15, 2029, the Exchangeable Notes will be exchangeable only upon satisfaction of certain conditions and during certain periods. Thereafter, the Exchangeable Notes will be exchangeable at any time until the close of business on the second scheduled trading day immediately preceding the Maturity Date. The Exchangeable Notes will be exchangeable by holders into shares of Hertz Global common stock, cash or a combination of common stock and cash, at the Company's election, at an initial exchange rate of 150.9388 shares per $1,000 principal amount of Exchangeable Notes, corresponding to an initial exchange price of $6.6252 per share, subject to adjustment upon the occurrence of certain events.
The Company may redeem the Exchangeable Notes on or after July 20, 2027 and on or prior to the 31st scheduled trading day immediately preceding the Maturity Date, if the last reported sale price per share of Hertz Global common stock has been at least 250% of the exchange price for the Exchangeable Notes for certain specified periods. The Company may redeem all (but not part) of the Exchangeable Notes at a cash redemption price equal to the initial principal amount of the Exchangeable Notes to be redeemed plus PIK interest on such Exchangeable Notes for each interest payment date occurring on or prior to the redemption date plus accrued and unpaid PIK interest on such Exchangeable Notes to, but not including, the redemption date.
At the time of issuance, certain investors affiliated with CK Amarillo LP ("CK Amarillo"), which is an affiliate of Hertz Holdings, purchased approximately $44 million of the Exchangeable Notes as further disclosed in Note 15, "Related Party Transactions."
Upon issuance, the Company bifurcated the Exchange Feature from the Exchangeable Notes for accounting purposes utilizing applicable guidance. As a result, the Company recognized a debt discount of $68 million within non-vehicle debt, representing the initial fair value of the Exchange Feature. As of September 30, 2024, the fair value of the Exchange Feature was $54 million. Refer to Note 13, "Fair Value Measurements," for further details.
The net carrying amount of the Exchangeable Notes consists of the following:
(In millions)
September 30, 2024
Principal
$
250
Unamortized debt discount and debt issuance costs(1)
(61)
Net carrying amount
$
189
(1) The debt discount is amortized to non-vehicle interest expense over the term of the Exchangeable Notes using the effective interest method.
Interest expense recognized for the Exchangeable Notes consists of the following:
Three Months Ended September 30,
Nine Months Ended September 30,
(In millions)
2024
2023
2024
2023
Contractual interest expense
$
5
$
—
$
5
$
—
Amortization of debt discount and debt issuance costs
2
—
2
—
(Gain) loss on fair value of Exchange Feature(1)
(14)
—
(14)
—
Total
$
(7)
$
—
$
(7)
$
—
(1) Refer also to Note 13, "Fair Value Measurements."
Vehicle Debt
HVF III U.S. Vehicle Variable Funding Notes
In April 2024, Hertz Vehicle Financing III LLC ("HVF III"), a wholly owned, special-purpose and bankruptcy-remote subsidiary of Hertz, amended the HVF III Series 2021-A Notes to extend the maturity of the Class A Notes to April 2026.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited
In May 2024, HVF III amended the HVF III Series 2021-A Notes to reduce the Tesla concentration limit.
HVF III U.S. Vehicle Medium Term Notes
HVF III Series 2024-1 Notes and Series 2024-2 Notes: In July 2024, HVF III issued the Series 2024-1 Notes (Class A, Class B, Class C and Class D) and Series 2024-2 Notes (Class A, Class B, Class C and Class D) each in aggregate principal amounts of $375 million with maturity dates of January 2028 and January 2030, respectively.
Vehicle Debt-Other
European ABS
In April 2024, International Fleet Financing No. 2 BV ("IFF No. 2"), an indirect, special purpose subsidiary of Hertz, amended the European ABS to increase the aggregate maximum borrowings from €1.2 billion to €1.3 billion. Additionally, the European ABS was amended to provide for aggregate maximum borrowings of €1.5 billion for a seasonal commitment period beginning in April 2024 through November 2024. Following expiration of the seasonal commitment period, the aggregate maximum borrowings will revert to €1.3 billion.
In June 2024, the European ABS was amended to (i) incorporate the Belgium fleet within the European ABS financing structure and (ii) make certain other administrative amendments and revisions for the incorporation of the Belgian fleet (the "Amendments"). The aggregate maximum borrowings available under the European ABS remain unchanged after giving effect to the Amendments.
Canadian Securitization
In April 2024, TCL Funding Limited Partnership, a bankruptcy remote, indirect, wholly owned, special purpose subsidiary of Hertz, amended the Hertz Canadian Securitization to increase the aggregate maximum borrowings from CAD$475 million to CAD$625 million until November 2024, reverting to CAD$475 million thereafter until the extended maturity date of April 2026.
Australian Securitization
In July 2024, HA Fleet Pty Limited, an indirect wholly owned subsidiary of Hertz, amended the Australian Securitization to extend the maturity date to June 2026.
New Zealand RCF
In September 2024, Hertz New Zealand Holdings, an indirect wholly owned subsidiary of Hertz, amended the New Zealand RCF to extend the maturity date to August 2026.
U.K. Financing Facility
In June 2024, the U.K. Financing Facility was amended to provide for a seasonal increase in aggregate maximum borrowings from £135 million to £155 million until October 2024.
In July 2024, the U.K. Financing Facility was amended to increase aggregate maximum borrowings from £135 million to £170 million, and together with the June 2024 amendment, providing for aggregate maximum borrowings of £190 million for the seasonal commitment period ending October 2024. Upon expiration of the seasonal commitment period, aggregate maximum borrowings will revert to £170 million. Also under the amendment, the maturity date of the U.K. Financing Facility was extended to May 2025.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited
Borrowing Capacity and Availability
Borrowing capacity and availability comes from the Company's revolving credit facilities, which are a combination of variable funding asset-backed securitization facilities, cash-flow based revolving credit facilities, asset-based revolving credit facilities and the First Lien RCF. Creditors under each such asset-backed securitization facility and asset-based revolving credit facility have a claim on a specific pool of assets as collateral. With respect to each such asset-backed securitization facility and asset-based revolving credit facility, the Company refers to the amount of debt it can borrow given a certain pool of assets as the borrowing base.
The Company refers to "Remaining Capacity" as the maximum principal amount of debt permitted to be outstanding under the respective facility (i.e., with respect to a variable funding asset-backed securitization facility or asset-based revolving credit facility, the amount of debt the Company could borrow assuming it possessed sufficient assets as collateral) less the principal amount of debt then-outstanding under such facility and, in the case of the First Lien RCF, less any issued standby letters of credit. With respect to a variable funding asset-backed securitization facility or asset-based revolving credit facility, the Company refers to "Availability Under Borrowing Base Limitation" as the lower of Remaining Capacity or the borrowing base less the principal amount of debt then-outstanding under such facility (i.e., the amount of debt that can be borrowed given the collateral possessed at such time).
The following facilities were available to the Company as of September 30, 2024 and are presented net of any outstanding letters of credit:
(In millions)
Remaining Capacity
Availability Under Borrowing Base Limitation
Non-Vehicle Debt
First Lien RCF
$
1,147
$
1,147
Total Non-Vehicle Debt
1,147
1,147
Vehicle Debt
HVF III Series 2021-A
2,163
—
European ABS
194
—
Hertz Canadian Securitization
43
—
Australian Securitization
16
—
New Zealand RCF
18
—
U.K. Financing Facility
58
—
Other Vehicle Debt
8
—
Total Vehicle Debt
2,500
—
Total
$
3,647
$
1,147
Letters of Credit
As of September 30, 2024, there were outstanding standby letters of credit totaling $864 million comprised primarily of $603 million issued under the First Lien RCF and $245 million issued under the Term C Loan. As of September 30, 2024, no capacity remained to issue additional letters of credit under the Term C Loan. Such letters of credit have been issued primarily to provide credit enhancement for the Company's asset-backed securitization facilities and to support the Company's insurance programs, as well as to support the Company's vehicle rental concessions and leaseholds. As of September 30, 2024, none of the issued letters of credit have been drawn upon.
Pledges Related to Vehicle Financing
Substantially all of the Company's revenue earning vehicles and certain related assets are owned by special purpose entities or are encumbered in favor of the lenders under the various credit facilities, other secured
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited
financings or asset-backed securities programs. None of the value of such assets (including the assets owned by Hertz Vehicle Financing III LLC and various other domestic and international subsidiaries that facilitate the Company's international securitizations) will be available to satisfy the claims of unsecured creditors unless the secured creditors are paid in full.
The Company has a 25% ownership interest in IFF No. 2, whose sole purpose is to provide commitments to lend under the European ABS in various currencies subject to borrowing bases comprised of revenue earning vehicles and related assets of certain of Hertz International, Ltd.'s subsidiaries. IFF No. 2 is a VIE and the Company is the primary beneficiary; therefore, the assets, liabilities and results of operations of IFF No. 2 are included in the accompanying unaudited condensed consolidated financial statements. As of September 30, 2024 and December 31, 2023, IFF No. 2 had total assets of $2.0 billion and $1.7 billion, respectively, comprised primarily of intercompany receivables, and total liabilities of $2.0 billion and $1.7 billion, respectively, comprised primarily of debt.
Covenant Compliance
The First Lien Credit Agreement requires Hertz to comply with the following financial covenant: the First Lien Ratio, which requires a ratio of less than or equal to 3.0x in the first and last quarters of the calendar year and 3.5x in the second and third quarters of the calendar year. Amendment No. 8 temporarily increases the First Lien Ratio and contains a minimum liquidity covenant for each fiscal quarter beginning in the second quarter of 2024 and will sunset on the first day of the second quarter of 2025, as disclosed above. As of September 30, 2024, Hertz was in compliance with the First Lien Ratio, as temporarily amended.
Additionally, the First Lien Credit Agreement, the First Lien Senior Notes, the Exchangeable Notes, the Senior Notes Due 2026 and the Senior Notes Due 2029 (collectively, the "Corporate Indebtedness") contain customary affirmative covenants including, among other things, the delivery of quarterly and annual financial statements and/or compliance certificates, and covenants related to conduct of business, maintenance of property and insurance, compliance with environmental laws and, where applicable, the granting of security interests for the benefit of the secured parties under the applicable agreements on after-acquired real property, fixtures and future subsidiaries.
The terms of the Corporate Indebtedness contain covenants limiting the ability of Hertz and its restricted subsidiaries to: incur or guarantee additional indebtedness; incur or guarantee secured indebtedness; pay dividends or distributions on, or redeem or repurchase, Hertz Global capital stock; make certain investments or other restricted payments; sell certain assets; transfer intellectual property to unrestricted subsidiaries; merge, consolidate or sell all or substantially all of its assets; and create restrictions on the ability of Hertz’s restricted subsidiaries to pay dividends or other amounts to Hertz. As per the terms of the Corporate Indebtedness, these covenants are subject to a number of important and significant limitations, qualifications and exceptions.
As of September 30, 2024, the Company was in compliance with all covenants under the terms of the agreements governing the respective Corporate Indebtedness.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited
Note 8—Leases
Lessor
The Company enters into certain agreements as a lessor under which it rents vehicles and leases fleets to customers. The following table summarizes the amount of operating lease income and other income included in total revenues in the accompanying unaudited condensed consolidated statements of operations:
Three Months Ended September 30,
Nine Months Ended September 30,
(In millions)
2024
2023
2024
2023
Operating lease income from vehicle rentals
$
2,330
$
2,476
$
6,343
$
6,549
Variable operating lease income
176
155
480
452
Revenue accounted for under Topic 842
2,506
2,631
6,823
7,001
Revenue accounted for under Topic 606
70
72
186
186
Total revenues
$
2,576
$
2,703
$
7,009
$
7,187
Lessee
In the third quarter of 2024, the Company recognized an impairment on the Long-Lived Assets, which included ROU assets, in the Americas RAC segment. See Note 3,"Long-Lived Assets Impairment," for further details.
Note 9—Income Tax (Provision) Benefit
Hertz Global
For the three months ended September 30, 2024, Hertz Global recorded a tax benefit of $288 million, which resulted in an effective tax rate of 18%.For the three months ended September 30, 2023, Hertz Global recorded a tax benefit of $70 million, which resulted in an effective tax rate of (13)%.
The change in taxes for the three months ended September 30, 2024 compared to the same period in 2023 was driven primarily by lower pretax income, changes in valuation allowances on deferred tax assets, lower estimated EV credits and the non-taxable change in the fair value of warrants.
For the nine months ended September 30, 2024, Hertz Global recorded a tax benefit of $291 million, which resulted in an effective tax rate of 11%. For the nine months ended September 30, 2023, Hertz Global recorded a tax benefit of $185 million, which resulted in an effective tax rate of (24)%.
The change in taxes in the nine months ended September 30, 2024 compared to the same period in 2023 was driven primarily by lower pretax income, changes in valuation allowances on deferred tax assets and lower estimated EV credits.
The Company determined that it was more-likely-than-not that certain deferred tax assets will not be realized. The Company evaluated positive and negative evidence, including operating results during the most recent three-year period and future projections, with more weight given to historical results than expectations of future profitability, which are inherently uncertain. The Company's losses in the most recent period represented sufficient negative evidence to require valuation allowances against certain deferred tax assets. The Company will assess the valuation allowances periodically and could reverse these amounts, partially or in total, if business results sufficiently improve to support the realization of certain deferred tax assets.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited
Hertz
For the three months ended September 30, 2024, Hertz recorded a tax benefit of $287 million, which resulted in an effective tax rate of 17%. For the three months ended September 30, 2023, Hertz recorded a tax benefit of $68 million, which resulted in an effective tax rate of (30)%.
The change in taxes for the three months ended September 30, 2024 compared to the same period in 2023 was driven primarily by lower pretax income, changes in valuation allowances on deferred tax assets and lower estimated EV credits.
For the nine months ended September 30, 2024, Hertz recorded a tax benefit of $291 million, which resulted in an effective tax rate of 10%. For the nine months ended September 30, 2023, the Company recorded a tax benefit of $184 million, which resulted in an effective tax rate of (27)%.
The change in taxes in the nine months ended September 30, 2024 compared to the same period in 2023 was driven primarily by lower pretax income, changes in valuation allowances on deferred tax assets and lower estimated EV credits.
The Company determined that it was more-likely-than-not that certain deferred tax assets will not be realized. The Company evaluated positive and negative evidence, including operating results during the most recent three-year period and future projections, with more weight given to historical results than expectations of future profitability, which are inherently uncertain. The Company's losses in the most recent period represented sufficient negative evidence to require valuation allowances against certain deferred tax assets. The Company will assess the valuation allowances periodically and could reverse these amounts, partially or in total, if business results sufficiently improve to support the realization of certain deferred tax assets.
Note 10—Public Warrants, Equity and Earnings (Loss) Per Common Share – Hertz Global
Public Warrants
In connection with the issuance of the Exchangeable Notes, as disclosed in Note 7, "Debt," an anti-dilution provision in the agreement governing the Public Warrants required that the exercise price and warrant number be adjusted. This resulted in the exercise price of the Public Warrants decreasing from $13.80 to $13.61, effective upon the issuance of the Exchangeable Notes on June 28, 2024. Effective concurrently with the change in exercise price, the number of shares of Hertz Global common stock to which a holder of a Public Warrant is entitled upon exercise of a Public Warrant increased from one share to 1.0140 shares.
During the three months ended September 30, 2024, 380 Public Warrants were exercised for $13.61 per share. During the nine months ended September 30, 2024, 9,143 Public Warrants were exercised, of which 5,516 were cashless exercises, 380 were exercised for $13.61 per share and 3,247 were exercised for $13.80 per share. As of September 30, 2024, a cumulative 6,344,347 Public Warrants have been exercised since their original issuance in June 2021. The Public Warrants are recorded at fair value in the accompanying unaudited condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023. See Note 13, "Fair Value Measurements."
Share Repurchase Programs for Common Stock
In June 2022, Hertz Global's independent Audit Committee recommended, and its Board of Directors (the "Board") approved, a new share repurchase program (the "2022 Share Repurchase Program") that authorized additional repurchases of up to an incremental $2.0 billion worth of shares of Hertz Global's outstanding common stock. The 2022 Share Repurchase Program, announced on June 15, 2022, has no initial time limit, does not obligate Hertz Global to acquire any particular amount of common stock and can be discontinued at any time. However, during the effective period of Amendment No. 8, as disclosed in Note 7, "Debt," the repurchase of shares is not permitted commencing April 16, 2024 through April 1, 2025. Since the inception of the 2022 Share Repurchase Program, a
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited
total of 66,684,169 shares of Hertz Global's common stock have been repurchased for an aggregate purchase price of $1.1 billion, excluding applicable excise tax. There were no share repurchases during the nine months ended September 30, 2024.
Common shares repurchased are included in treasury stock in the accompanying Hertz Global unaudited condensed consolidated balance sheet as of September 30, 2024 and December 31, 2023.
Subsequent to the expiration of Amendment No. 8, any future share repurchases will be made at the discretion of Hertz Global's management through a variety of methods, such as open-market transactions (including pre-set trading plans pursuant to Rule 10b5-1 of the Exchange Act), privately negotiated transactions, accelerated share repurchases and other transactions in accordance with applicable securities laws. There can be no assurance as to the timing or number of shares of any repurchases.
Computation of Earnings (Loss) Per Common Share
Basic earnings (loss) per common share has been computed based upon the weighted-average number of common shares outstanding. Diluted earnings (loss) per common share has been computed based upon the weighted-average number of common shares outstanding plus the effect of all potentially dilutive common stock equivalents, including Public Warrants and Exchangeable Notes, except when the effect would be antidilutive. Additionally, the Company removes the income or expense impacts related to Public Warrants and Exchangeable Notes when computing diluted earnings (loss) per common share, when the impacts are dilutive.
The following table sets forth the computation of basic and diluted earnings (loss) per common share:
Three Months Ended September 30,
Nine Months Ended September 30,
(In millions, except per share data)(1)
2024
2023
2024
2023
Numerator:
Net income (loss) available to Hertz Global common stockholders, basic
$
(1,332)
$
629
$
(2,383)
$
964
Change in fair value of Public Warrants
—
(328)
—
(110)
Net income (loss) available to Hertz Global common stockholders, diluted
$
(1,332)
$
300
$
(2,383)
$
853
Denominator:
Basic weighted-average common shares outstanding
307
311
306
315
Dilutive effect of stock options, RSUs and PSUs
—
2
—
1
Dilutive effect of Public Warrants
—
14
—
15
Diluted weighted-average shares outstanding
307
327
306
332
Antidilutive Public Warrants
240
—
146
—
Antidilutive stock options, RSUs and PSUs
15
5
13
6
Antidilutive shares related to Exchangeable Notes
38
—
13
—
Total antidilutive
293
5
172
6
Earnings (loss) per common share:
Basic
$
(4.34)
$
2.02
$
(7.79)
$
3.06
Diluted
$
(4.34)
$
0.92
$
(7.79)
$
2.57
(1) The table above is denoted in millions, excluding earnings (loss) per common share. Amounts are calculated from the underlying numbers in thousands, and as a result, may not agree to the amounts shown in the table when calculated in millions.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited
Note 11—Stock-Based Compensation
The stock-based compensation expense associated with the Hertz Holdings stock-based compensation plans is pushed down from Hertz Global and recorded at Hertz. In 2021, the Board approved the Hertz Global Holdings, Inc. 2021 Omnibus Incentive Plan (the "2021 Omnibus Plan"). As of September 30, 2024, 47,576,994 shares of the Company's common stock were authorized and remain available for future grants under the 2021 Omnibus Plan. Vesting of the outstanding equity awards is also subject to accelerated vesting as set forth in the 2021 Omnibus Plan.
A summary of the total employee compensation expense and related income tax benefits recognized for grants made under the 2021 Omnibus Plan is as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(In millions)
2024
2023
2024
2023
Employee compensation expense(1)
$
15
$
21
$
(21)
$
64
Income tax benefit
(2)
1
(7)
(7)
Employee compensation expense, net
$
13
$
22
$
(28)
$
57
(1) For the nine months ended September 30, 2024, includes $68 million of former CEO awards forfeited in March 2024.
As of September 30, 2024, there was $112 million of total unrecognized employee compensation expense expected to be recognized over the remaining 1.7 years, on a weighted average basis, of the requisite service period that began on the grant dates of the outstanding awards.
Stock Options and Stock Appreciation Rights
A summary of stock option activity under the 2021 Omnibus Plan for the nine months ended September 30, 2024 is presented below.
Options
Shares
Weighted- Average Exercise Price
Weighted- Average Remaining Contractual Term (years)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited
Performance Stock Awards ("PSAs"), Performance Stock Units ("PSUs") and Performance Units ("PUs")
A summary of the PSU activity for the nine months ended September 30, 2024 under the 2021 Omnibus Plan is presented below.
Shares
Weighted- Average Fair Value
Aggregate Intrinsic Value (In millions)
Outstanding as of January 1, 2024
9,102,738
$
17.52
$
95
Granted(1)
5,432,847
4.55
—
Vested
—
—
—
Forfeited or Expired(2)
(9,334,202)
17.12
—
Outstanding as of September 30, 2024
5,201,383
4.69
17
(1) Presented assuming the issuance at the original target award amount (100%).
(2) Includes former CEO awards forfeited in March 2024.
Compensation expense for PSUs is based on the grant date fair value of Hertz Global common stock. For grants issued in 2024, vesting eligibility is based on market, performance and service conditions of primarily two to five years. Accordingly, the number of shares issued at the end of the performance period could range between 0% and 200% of the original target award amount (100%) disclosed in the table above. Certain of these PSUs, which were granted during the months of April and June in the second quarter of 2024 and during the month of July in the third quarter of 2024, were valued on the respective grant date using a Monte Carlo simulation model that incorporates the assumptions noted in the following table:
Grants
Assumption
April 2024
June 2024
July 2024
Expected volatility
60
%
65
%
70
%
Expected dividend yield
—
%
—
%
—
%
Expected term (years)
5
5
5
Risk-free interest rate
4.34
%
4.30
%
4.17
%
Weighted-average grant date fair value
$
5.92
$
1.71
$
2.51
As of September 30, 2024, there were no issued or outstanding grants of PSAs or PUs under the 2021 Omnibus Plan.
Restricted Stock and Restricted Stock Units ("RSUs")
A summary of RSU activity for the nine months ended September 30, 2024 under the 2021 Omnibus Plan is presented below.
Shares
Weighted- Average Fair Value
Aggregate Intrinsic Value (In millions)
Outstanding as of January 1, 2024
6,314,564
$
15.71
$
66
Granted
17,773,434
5.44
—
Vested
(1,930,472)
13.22
—
Forfeited or Expired(1)
(4,051,231)
12.10
—
Outstanding as of September 30, 2024
18,106,295
6.70
60
(1) Includes former CEO awards forfeited in March 2024.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited
Additional information pertaining to RSU activity is as follows:
Nine Months Ended September 30,
2024
2023
Total fair value of awards that vested (in millions)
$
26
$
9
Weighted-average grant-date fair value of awards granted
$
5.44
$
17.57
RSU grants issued in 2024 vest ratably over a period of primarily three years.
Deferred Stock Units
As of September 30, 2024, there were approximately 191,000 outstanding shares of deferred stock units under the 2021 Omnibus Plan.
Note 12—Financial Instruments
The Company employs established risk management policies and procedures, and, under the terms of our ABS facilities, may be required to enter into interest rate derivatives, which seek to reduce the Company’s commercial risk exposure to fluctuations in interest rates and currency exchange rates. Although the instruments utilized involve varying degrees of credit, market and interest risk, the Company contracts with multiple counterparties to mitigate concentrations of risk and the counterparties to the agreements are expected to perform fully under the terms of the agreements. The Company monitors counterparty credit risk, including lenders, on a regular basis, but cannot be certain that all risks will be discerned or that its risk management policies and procedures will always be effective. Additionally, upon the occurrence of an event of default under the Company’s International Swaps and Derivatives Association ("ISDA") master derivative agreements, the non-defaulting party generally has the right, but not the obligation, to set-off any early termination amounts under any such agreements against any other amounts owed with regard to any other agreements between the parties to each such agreement.
None of the Company's financial instruments have been designated as hedging instruments as of September 30, 2024 and December 31, 2023. The Company classifies cash flows from financial instruments according to the classification of the cash flows of the economically hedged item(s).
Interest Rate Risk
The Company uses a combination of interest rate caps and swaps to manage its exposure to interest rate movements and to manage its mix of floating and fixed-rate debt.
Currency Exchange Rate Risk
The Company uses foreign currency exchange rate derivative financial instruments to manage its currency exposure resulting from intercompany transactions and other cross currency obligations.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited
Fair Value
The following table summarizes the estimated fair value of financial instruments:
Fair Value of Financial Instruments
Asset Derivatives
Liability Derivatives
(In millions)
September 30, 2024
December 31, 2023
September 30, 2024
December 31, 2023
Interest rate instruments(1)
$
1
$
10
$
—
$
—
Foreign currency forward contracts(1)
6
5
2
2
Exchange Feature related to Exchangeable Notes(2)
—
—
54
—
Total
$
7
$
15
$
56
$
2
(1) Asset derivatives are recorded in prepaid expenses and other assets and liability derivatives are recorded in accrued liabilities in the accompanying unaudited condensed consolidated balance sheets.
(2) The Exchange Feature was bifurcated as a derivative upon issuance of the Exchangeable Notes in June 2024, as disclosed in Note 7, "Debt," and is recorded in non-vehicle debt in the accompanying unaudited condensed consolidated balance sheet as of September 30, 2024.
The following table summarizes the gains or (losses) on financial instruments for the period indicated:
Location of Gain (Loss) Recognized on Derivatives
Amount of Gain (Loss) Recognized in Income on Derivatives
Three Months Ended September 30,
Nine Months Ended September 30,
(In millions)
2024
2023
2024
2023
Interest rate instruments
Vehicle interest expense, net
$
(3)
$
(7)
$
(5)
$
4
Foreign currency forward contracts
Selling, general and administrative expense
4
8
(5)
(2)
Exchange Feature related to Exchangeable Notes(1)
Non-vehicle interest expense, net
14
—
14
—
Total
$
15
$
1
$
4
$
2
(1) The Exchange Feature was bifurcated as a derivative upon issuance of the Exchangeable Notes in June 2024, as further disclosed in Note 7, "Debt."
In the first quarter of 2023, the Company sold certain of its interest rate caps resulting in a net gain of $10 million based on the recognition of a $98 million realized gain on the unwind, of which $88 million was previously unrealized.
The Company's foreign currency forward contracts and certain interest rate instruments are subject to enforceable master netting agreements with their counterparties. The Company does not offset such derivative assets and liabilities in its unaudited condensed consolidated balance sheets, and the potential effect of the Company’s use of the master netting arrangements is not material.
Note 13—Fair Value Measurements
Under U.S. GAAP, entities are allowed to measure certain financial instruments and other items at fair value. The Company has not elected the fair value measurement option for any of its assets or liabilities that meet the criteria for this option. Irrespective of the fair value option previously described, U.S. GAAP requires certain financial and non-financial assets and liabilities of the Company to be measured on either a recurring basis or on a nonrecurring basis.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited
Fair Value Disclosures
The fair value of cash, restricted cash, accounts receivable, accounts payable and accrued liabilities, to the extent the underlying liability will be settled in cash, approximates the carrying values because of the short-term nature of these instruments.
Debt Obligations
The fair value of the debt facilities is estimated based on quoted market rates as well as borrowing rates currently available to the Company for loans with similar terms and average maturities (i.e., Level 2 inputs).
September 30, 2024
December 31, 2023
(In millions)
Nominal Unpaid Principal Balance
Aggregate Fair Value
Nominal Unpaid Principal Balance
Aggregate Fair Value
Other Non-Vehicle Debt
$
4,501
$
3,910
$
3,515
$
3,285
Exchangeable Notes(1)
250
250
—
—
Total Non-Vehicle Debt
4,751
4,160
3,515
3,285
Vehicle Debt
12,361
12,136
12,314
11,878
Total
$
17,112
$
16,296
$
15,829
$
15,163
(1) As of September 30, 2024, the nominal unpaid principal balance and aggregate fair value of the Exchangeable Notes include $54 million related to the Exchange Feature, which is measured based on Level 3 inputs as disclosed below.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table summarizes the Company's assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy as follows:
September 30, 2024
December 31, 2023
(In millions)
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets:
Cash equivalents and restricted cash equivalents
$
145
$
—
$
—
$
145
$
362
$
—
$
—
$
362
Liabilities:
Public Warrants
$
181
$
—
$
—
$
181
$
453
$
—
$
—
$
453
Exchange Feature
$
—
$
—
$
54
$
54
$
—
$
—
$
—
$
—
Cash Equivalents and Restricted Cash Equivalents
The Company’s cash equivalents and restricted cash equivalents primarily consist of investments in money market funds and bank money market and interest-bearing accounts. The Company determines the fair value of cash equivalents and restricted cash equivalents using a market approach based on quoted prices in active markets (i.e., Level 1 inputs).
Public Warrants – Hertz Global
Hertz Global's Public Warrants are classified as liabilities and recorded at fair value in the accompanying unaudited condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023 in accordance with the provisions of ASC 480, Distinguishing Liabilities from Equity. See Note 10, "Public Warrants, Equity and Earnings (Loss) Per Common Share – Hertz Global," for additional information. The Company calculates the fair value based on the end-of-day quoted market price (i.e., a Level 1 input). For the three and nine months ended September 30, 2024, the fair value adjustments were gains of $21 million and $272 million, respectively. For the three and nine
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited
months ended September 30, 2023, the fair value adjustments were gains of $328 million and $110 million, respectively. These amounts are recorded in change in fair value of Public Warrants in the accompanying unaudited condensed consolidated statement of operations for Hertz Global for the three and nine months ended September 30, 2024 and 2023.
Exchange Feature
The Exchangeable Notes contain an embedded conversion feature, the Exchange Feature, that is required to be bifurcated and accounted for separately from the Exchangeable Notes as a derivative liability at fair value. Refer to Note 7, "Debt," and Note 12, "Financial Instruments," for further information.
The fair value of the Exchange Feature was determined using a lattice model and a “with-and-without” valuation methodology. The inputs used to estimate the fair value of the Exchange Feature include the probability of potential settlement scenarios, the expected timing of such settlement and an expected volatility determined by reference to historical stock volatilities. As the expected volatility input is considered unobservable, the Company has categorized the Exchange Feature as Level 3 in the fair value hierarchy.
The estimated fair value of the Exchange Feature was computed using the following key inputs as of September 30, 2024:
September 30, 2024
Hertz Global common share price
$
3.30
Expected term (years)
4.79
Risk-free interest rate
3.58
%
Credit spread
9.63
%
Expected volatility
48.75
%
The significant unobservable input used in the fair value measurement of the Exchange Feature is expected volatility. Holding other inputs constant, an increase (decrease) in expected volatility would have resulted in a higher (lower) fair value measurement, respectively.
The following table summarizes the activity related to the Exchange Feature measured at fair value utilizing significant unobservable inputs (Level 3) as of September 30, 2024:
(In millions)
Balance as of December 31, 2023
$
—
Initial recognition of derivative liability
68
(Gain) loss in fair value recognized in earnings(1)
(14)
Balance as of September 30, 2024
$
54
(1) Included in non-vehicle interest expense, net in the accompanying unaudited condensed consolidated statement of operations for the three and nine months ended September 30, 2024.
Financial Instruments
The fair value of the Company's financial instruments as of September 30, 2024 and December 31, 2023 are disclosed in Note 12, "Financial Instruments." The Company's financial instruments, excluding the Exchange Feature as disclosed above, are priced using quoted market prices for similar assets or liabilities in active markets (i.e., Level 2 inputs).
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
In December 2023 and March 2024, the Company identified the EV Disposal Groups which were in response to management's determination that the supply of EVs exceeded customer demand, elevated EV damage and collision costs, and a decline in EV residual values. As a result, the EV Disposal Groups were classified as held for sale. As of September 30, 2024, the remaining, unsold portion of the EV Disposal Groups continued to be classified as held for sale and was recorded at the lower of carrying value or fair value (as determined using Level 2 inputs) less costs to sell. Refer to Note 5, "Revenue Earning Vehicles," for additional information.
Note 14—Contingencies and Off-Balance Sheet Commitments
Legal Proceedings
Self-Insured Liabilities
The Company is currently a defendant in numerous actions and has received numerous claims on which actions have not yet commenced for self-insured liabilities arising from the operation of motor vehicles rented from the Company. The obligation for self-insured liabilities on self-insured U.S. and international vehicles, as stated in the accompanying unaudited condensed consolidated balance sheets, represents an estimate for both reported accident claims not yet paid and claims incurred but not yet reported. The related liabilities are recorded on an undiscounted basis and are based on rental volume and actuarial evaluations of historical accident claim experience and trends, as well as future projections of ultimate losses, expenses, premiums and administrative costs. As of September 30, 2024 and December 31, 2023, the Company's liability recorded for self-insured liabilities was $559 million and $471 million, of which $422 million and $336 million relates to liabilities incurred by the Company's Americas RAC operations, respectively. The Company believes that its analysis is based on the most relevant information available, combined with reasonable assumptions. The liability is subject to significant uncertainties. The adequacy of the liability is monitored quarterly based on evolving accident claim history and insurance-related state legislation changes. If the Company's estimates change or if actual results differ from these assumptions, the amount of the recorded liability is adjusted to reflect these results.
Loss Contingencies
From time to time, the Company is a party to various legal proceedings, typically involving operational issues common to the vehicle rental business. The Company has summarized below the material legal proceedings to which the Company was a party during the three months ended September 30, 2024 or the period after September 30, 2024, but before the filing of this Quarterly Report.
Make-Whole and Post-Petition Interest Claims – On July 1, 2021, Wells Fargo Bank, N.A. ("Wells Fargo"), in its capacity as indenture trustee of (1) 6.250% Unsecured Notes due 2022 (the "2022 Notes"), (2) 5.500% Unsecured Notes due 2024 (the "2024 Notes"), (3) 7.125% Unsecured Notes due 2026 (the "2026 Notes") and (4) 6.000% Unsecured Notes due 2028 (the "2028 Notes") issued by The Hertz Corporation (collectively, the “Unsecured Notes”), filed a complaint against The Hertz Corporation and multiple direct and indirect subsidiaries thereof (collectively referred to in this paragraph summary as “defendants”). The filing of the complaint initiated the adversary proceeding captioned Wells Fargo Bank, N.A. v. The Hertz Corp., et al. in the United States Bankruptcy Court for the District of Delaware (the "Delaware Bankruptcy Court"), Adv. Pro. No. 21-50995 (MFW). The complaint seeks a declaratory judgment that the holders of the Unsecured Notes are entitled to payment of certain redemption premiums and post-petition interest that the holders assert total approximately $272 million or, in the alternative, are entitled to payment of post-petition interest at a contractual rate that they assert totals approximately $125 million. The complaint also asserts the right to pre-judgment interest from July 1, 2021 to the date of any judgment. On December 22, 2021, the Delaware Bankruptcy Court dismissed Wells Fargo’s claims with respect to (i) the redemption premium allegedly owed on the 2022 Notes and the 2024 Notes and (ii) post-petition interest at the contract rate. See Wells Fargo Bank, N.A. v. The Hertz Corp., et al., 637 B.R. 781 (Bankr. D. Del. Dec. 22, 2021). On November 9, 2022, the Delaware Bankruptcy Court ruled that the make-whole premium is the same as unmatured interest and is disallowed under the U.S. Bankruptcy Code, granting summary judgment in the
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited
defendants’ favor. The Delaware Bankruptcy Court certified the matter directly to the U.S. Court of Appeals for the Third Circuit (the “Third Circuit”) and, on January 25, 2023, the Third Circuit accepted Wells Fargo’s appeal. The Third Circuit held an oral argument for this appeal on October 25, 2023, and on September 10, 2024, the Third Circuit issued its opinion in Wells Fargo Bank, N.A. v. The Hertz Corp., et al., 117 F.4th 109 (3d Cir. 2024). In a 2-1 decision, a panel of the Third Circuit held that the "absolute priority rule" required Hertz to pay the make-whole premium on the 2026 Notes and on the 2028 Notes, and post-petition interest at the contract rate rather than the federal judgment rate on all Unsecured Notes, even though those amounts were disallowed under the Bankruptcy Code. As a result, the Company has accrued approximately $320 million for this litigation as of September 30, 2024, made up of approximately $260 million on the underlying claims and approximately $60 million in pre-judgment interest, which interest will continue to accrue until the date of any judgment that may be entered by the Delaware Bankruptcy Court. On October 15, 2024, the Company filed a petition with the Third Circuit for a rehearing en banc, which the Third Circuit denied on November 6, 2024. The Company cannot predict the ultimate outcome or timing of this litigation; if, however, the Delaware Bankruptcy Court were to enter judgment against Hertz, payment of such judgment could have a material adverse effect on the Company's financial condition, results of operations or cash flows.
Claims Related to Alleged False Arrests – A group of claims involving allegations that the police detained or arrested individuals in error after the Company reported rental cars as stolen were previously advanced against the Company. These claims first arose from actions allegedly taken by the Company prior to its emergence from bankruptcy reorganization; some claims alleged post-emergence behavior by the Company. These claims have been the subject of press coverage, and the Company has received government inquiries on the matter. The Company has policies to help guide the proper treatment of its customers and to seek to protect itself against the theft of its services or assets, and the Company has taken significant steps to modernize and update those policies. In December 2022, the Company entered into settlement agreements with 364 claimants in full and final resolutions of their claims for an aggregated amount of approximately $168 million (the "Settlement"), all of which amount was paid by the Company during December 2022. The Settlement resolved nearly all of the false arrest-related claims being advanced in the U.S. Bankruptcy Court for the District of Delaware, Adv. Pro. No. 20-11247 (MFW) and state court in Delaware (captioned Flannery, et al. v. Hertz Global Holdings, Inc., et al., C.A. No. N22C-07-100 and Okoasia, et al. v. Hertz Global Holdings, Inc., et al., C.A. No. N22C-09-531). Also, as a result of the Settlements, state court matters pending in Pennsylvania, captioned Lovelace, et al. v. Hertz Global Holdings, Inc., et al., Case No. 220801729, and in Florida, captioned Lizasoain, et al. v. Hertz Global Holdings, Inc., et al., Case No. 2022-015316-CA-1, were dismissed with prejudice. The Company continues to vigorously defend itself and believes that the ultimate resolution of any remaining claims will not have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows. Relatedly, in May 2022, the Company filed a complaint against several of its insurers seeking a determination of its rights under its commercial general liability, and directors and officers liability, insurance policies for these alleged claims in a declaratory judgment action pending in Delaware Superior Court, Hertz Global Holdings, Inc., et al. v. ACE American Insurance Co., et al., C.A. No. N22C-05-130 MMJ (CCLD). On June 30, 2023, Hertz entered into a confidential settlement agreement with ACE American Insurance Company. On July 10, 2024, the Delaware Superior Court held a hearing on cross-motions for partial summary judgment and summary judgment. The Company entered into confidential settlement agreements with some of the remaining insurers before and after the hearing. On October 8, 2024, the Delaware Superior Court denied the Company's motion for partial summary judgment and granted the cross-motions for summary judgment and partial summary judgment in favor of the remaining general liability insurers. The case remains pending against some of the remaining directors' and officers' liability insurers.
Share Repurchase Program Litigation – On May 11, 2023, Angelo Cascia, a purported stockholder of Hertz Global, filed a putative class and derivative lawsuit in the Delaware Court of Chancery (the "Delaware Chancery Court") against certain current and former directors of Hertz Global, Knighthead Capital Management, LLC ("Knighthead"), Certares Opportunities LLC ("Certares") and CK Amarillo. The claims in the complaint relate to the Company’s share repurchase programs approved in November 2021 and June 2022. Among other allegations, the plaintiff claims Board members breached their fiduciary duties in approving these share repurchase programs and that Knighthead, Certares, and CK Amarillo were unjustly enriched because they gained a majority stake in Hertz Global as a result of share repurchases. Defendants filed their motion to dismiss the complaint on July 24, 2023. On March 11, 2024, the Delaware Chancery Court held a hearing on defendants' motion to dismiss. On June 20, 2024, the
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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Delaware Chancery Court granted in part and denied in part the defendants' motion to dismiss. The Delaware Chancery Court dismissed the claims against directors Feikin, Fields, Intrieri and Vougessis with prejudice, dismissed the claims related to the 2021 buyback without prejudice and allowed the remaining claims to proceed. On August 26, 2024, the Board formed a Special Litigation Committee (the "SLC"), made up of two independent directors, to evaluate and take any necessary actions related to the remaining claims. On October 21, 2024, the Delaware Chancery Court granted a motion to stay the litigation, including all discovery, until March 21, 2025.
Securities Class Action Complaint – On May 31, 2024, a complaint was filed in the United States District Court for the Middle District of Florida (the "Florida Middle District Court"), captioned Edward M. Doller v. Hertz Global Holdings, Inc. et al. (No. 2:24-CV-00513). On September 30, 2024, an amended complaint was filed, following the Florida Middle District Court's appointment of a lead plaintiff and a lead counsel. The amended complaint asserts claims against Hertz Global, former Company CEO, Stephen M. Scherr, and former Company Chief Financial Officer, Alexandra Brooks, alleging violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, including concerning statements regarding demand for EVs. Plaintiffs assert claims on behalf of a putative class, consisting of all persons and entities that purchased or otherwise acquired Hertz Global's securities between January 6, 2023 and April 24, 2024. The amended complaint seeks unspecified damages, together with interest, attorneys’ fees and other costs. Hertz Global filed a motion to dismiss the complaint on October 30, 2024.
Warrant Holder Litigation – The holders of approximately 11% of the outstanding Public Warrants issued by Hertz Global under the Warrant Agreement, dated as of June 30, 2021 (the “Warrant Agreement”), filed a lawsuit, captioned Discovery Global Opportunity Master Fund, Ltd. v. Hertz Global Holdings, Inc., Case No. 2024-0655 (the “Action”), in the Delaware Chancery Court, on June 14, 2024. The complaint in the Action alleges generally that a “Change of Control Event” (as defined in the Warrant Agreement) had occurred by virtue of Hertz Global's repurchase of shares between November 2021 and December 31, 2023 and Hertz Global's incurrence of indebtedness. The complaint further asserts that, as a result of the alleged Change of Control Event, the plaintiffs are entitled to a “Change of Control Payment Amount” (as defined in the Warrant Agreement) in the amount of $20.47 per Public Warrant, or approximately $188 million in the aggregate, for their 11% position. The complaint asserts three claims for breach of contract and seeks a declaration from the Delaware Chancery Court that a Change of Control Event has occurred and that Hertz Global breached the Warrant Agreement by failing to redeem the warrants, monetary damages of at least $188 million plus pre- and post-judgment interest, and an order of specific performance, requiring Hertz Global to comply with its contractual obligations under the Warrant Agreement. On June 17, 2024, Hertz Global filed a motion to dismiss the complaint, which is now fully briefed. A hearing on the motion to dismiss is scheduled for November 12, 2024.
The Company has established reserves for matters where the Company believes that losses are probable and can be reasonably estimated. Other than the aggregate reserve established for claims for self-insured liabilities and the bankruptcy-related litigation, none of those reserves are material. For matters where the Company has not established a reserve, the ultimate outcome or resolution cannot be predicted at this time, or the amount of ultimate loss, if any, cannot be reasonably estimated. These matters are subject to many uncertainties, and the outcome of the individual litigated matters is not predictable with assurance. It is possible that certain of the actions, claims, inquiries or proceedings could be decided unfavorably to the Company or any of its subsidiaries involved. Accordingly, it is possible that an adverse outcome from such a proceeding could exceed the amount accrued in an amount that could be material to the Company's consolidated financial condition, results of operations or cash flows in any particular reporting period.
Indemnification Obligations
In the ordinary course of business, the Company has executed contracts involving indemnification obligations customary in the relevant industry and indemnifications specific to a transaction, such as the sale of a business. These indemnification obligations might include claims relating to the following: environmental matters; intellectual property rights; governmental regulations and employment-related matters; customer, supplier and other commercial contractual relationships and financial matters. Specifically, the Company has indemnified various parties for the costs associated with remediating numerous hazardous substance storage, recycling or disposal
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited
sites in many states and, in some instances, for natural resource damages. The amount of any such expenses or related natural resource damages for which the Company may be held responsible could be substantial. In addition, Hertz entered into customary indemnification agreements with Hertz Holdings and certain of the Company's stockholders and their affiliates pursuant to which Hertz Holdings and Hertz will indemnify those entities and their respective affiliates, directors, officers, partners, members, employees, agents, representatives and controlling persons, against certain liabilities arising out of performance of a consulting agreement with Hertz Holdings and each of such entities and certain other claims and liabilities, including liabilities arising out of financing arrangements or securities offerings. The Company has entered into customary indemnification agreements with each of its directors and certain of its officers. Performance under these indemnification obligations would generally be triggered by a breach of terms of the contract or by a third-party claim. In connection with the separation of the car rental business in 2016, the Company executed an agreement with Herc Holdings Inc. that contains mutual indemnification clauses and a customary indemnification provision with respect to liability arising out of, or resulting from, assumed legal matters. The Company regularly evaluates the probability of having to incur costs associated with these indemnification obligations and has accrued for expected losses that are probable and estimable.
Note 15—Related Party Transactions
Other Relationships
On June 19, 2024, Hertz entered into a Note Purchase Agreement (“NPA”) with Knighthead Annuity & Life Assurance Company, Knighthead Distressed Opportunities Fund, L.P., Knighthead (NY) Fund, L.P., Knighthead Master Fund, L.P. and CK Opportunities Fund I, LP (collectively, the “Investors”), which entities are investors affiliated with CK Amarillo, an affiliate of Hertz Holdings, in connection with a backstop for Hertz's Exchangeable Notes offering, as disclosed in Note 7, "Debt." Under the terms of the NPA, Hertz had the right, but not the obligation, to sell to the Investors up to approximately $44 million in aggregate principal amount of Exchangeable Notes at the same price paid by investors in the offering of Exchangeable Notes. At the time of issuance, the Investors purchased approximately $44 million of the Exchangeable Notes on terms no less favorable than those purchased by non-related parties in the offering.
Note 16—Segment Information
The Company’s chief operating decision maker ("CODM") assesses performance and allocates resources based upon the financial information for the Company’s reportable segments. The Company has identified two reportable segments, which are consistent with its operating segments and organized based on the products and services provided and the geographic areas in which business is conducted, as follows:
•Americas RAC – Rental of vehicles (cars, crossovers, vans and light trucks), as well as sales of value-added services, in the U.S., Canada, Latin America and the Caribbean; and
•International RAC – Rental of vehicles (cars, crossovers, vans and light trucks), as well as sales of value-added services, in locations other than the U.S., Canada, Latin America and the Caribbean.
In addition to its reportable segments and other operating activities, the Company has corporate operations ("Corporate"), which includes general corporate assets and expenses and certain interest expense (including net interest on non-vehicle debt). Corporate includes other items necessary to reconcile the reportable segments to the Company's total amounts.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited
The following tables provide significant statement of operations and balance sheet information by reportable segment for each of Hertz Global and Hertz, as well as Adjusted EBITDA, the measure used to determine segment profitability.
Three Months Ended September 30,
Nine Months Ended September 30,
(In millions)
2024
2023
2024
2023
Revenues
Americas RAC
$
2,062
$
2,172
$
5,729
$
5,917
International RAC
514
531
1,280
1,270
Total Hertz Global and Hertz
$
2,576
$
2,703
$
7,009
$
7,187
Depreciation of revenue earning vehicles and lease charges, net
Americas RAC(1)
$
822
$
414
$
2,603
$
1,035
International RAC(1)
115
87
338
176
Total Hertz Global and Hertz
$
937
$
501
$
2,941
$
1,211
Adjusted EBITDA
Americas RAC
$
(169)
$
302
$
(1,060)
$
894
International RAC
63
109
30
258
Total reportable segments
(106)
411
(1,030)
1,152
Corporate
(51)
(52)
(154)
(209)
Total Hertz Global and Hertz
$
(157)
$
359
$
(1,184)
$
943
As of
(In millions)
September 30, 2024
December 31, 2023
Revenue earning vehicles, net
Americas RAC(2)(3)
$
10,988
$
12,450
International RAC(2)(3)
2,247
2,201
Total Hertz Global and Hertz
$
13,235
$
14,651
Total assets
Americas RAC(3)
$
18,062
$
19,252
International RAC(3)
4,008
4,245
Total reportable segments
22,070
23,497
Corporate
909
1,108
Total Hertz Global(4)
22,979
24,605
Corporate - Hertz
(1)
(1)
Total Hertz(4)
$
22,978
$
24,604
(1) For the nine months ended September 30, 2024, includes the write-down to carrying value of vehicles classified as held for sale, including the EV Disposal Groups. See Note 5, "Revenue Earning Vehicles," for further information.
(2) Includes the carrying amount of vehicles classified as held for sale as of the respective balance sheet date, including the EV Disposal Groups. See Note 5, "Revenue Earning Vehicles," for further information.
(3) Includes Long-Lived Assets impairment charges recognized in the third quarter of 2024. See Note 3,"Long-Lived Assets Impairment," for further information.
(4) The consolidated total assets of Hertz Global and Hertz as of September 30, 2024 and December 31, 2023 include total assets of VIEs of $2.0 billion and $1.7 billion, respectively, which can only be used to settle obligations of the VIEs. See "Pledges Related to Vehicle Financing" in Note 7, "Debt," for further information.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited
Hertz
Three Months Ended September 30,
Nine Months Ended September 30,
(In millions)
2024
2023
2024
2023
Adjusted EBITDA:
Americas RAC
$
(169)
$
302
$
(1,060)
$
894
International RAC
63
109
30
258
Total reportable segments
(106)
411
(1,030)
1,152
Corporate(1)
(51)
(52)
(154)
(209)
Total Hertz
(157)
359
(1,184)
943
Adjustments:
Non-vehicle depreciation and amortization
(34)
(33)
(107)
(100)
Non-vehicle debt interest, net
(103)
(63)
(266)
(170)
Vehicle debt-related charges(2)
(11)
(11)
(33)
(31)
Restructuring and restructuring related charges(3)
(1)
(2)
(45)
(10)
Unrealized gains (losses) on financial instruments(5)
16
(1)
8
(107)
Gain on sale of non-vehicle capital assets(6)
—
—
—
162
Non-cash stock-based compensation forfeitures(7)
—
—
64
—
Bankruptcy-related litigation reserve(8)
(288)
—
(288)
—
Long-Lived Assets impairment(9)
(1,048)
—
(1,048)
—
Other items(10)
(15)
(18)
(47)
(18)
Income (loss) before income taxes
$
(1,641)
$
231
$
(2,946)
$
669
(1)Represents other reconciling items primarily consisting of general corporate expenses and non-vehicle interest expense, as well as other business activities.
(2)Represents vehicle debt-related charges relating to the amortization of deferred financing costs and debt discounts and premiums.
(3)Represents charges incurred under restructuring actions as defined in U.S. GAAP. Also includes restructuring related charges such as incremental costs incurred related to personnel reductions and closure of underperforming locations.
(4)Represents the change in fair value during the reporting period for the Company's outstanding Public Warrants.
(5)Represents unrealized gains (losses) on derivative financial instruments. In 2023, also includes the realization of $88 million of previously unrealized gains resulting from the unwind of certain interest rate caps in the first quarter of 2023. See Note 12, "Financial Instruments."
(6)Represents gain on sale of certain non-vehicle capital assets sold in March 2023. See Note 4, "Divestitures."
(7)Represents former CEO awards forfeited in March 2024. See Note 11, "Stock-Based Compensation."
(8)Represents an increase to an existing bankruptcy-related litigation reserve recorded in September 2024. See Note 14, "Contingencies and Off-Balance Sheet Commitments."
(9)Represents Long-Lived Assets impairment charges recognized in the third quarter of 2024. See Note 3,"Long-Lived Assets Impairment."
(10)Represents miscellaneous items. For the three and nine months ended September 30, 2024, primarily includes certain IT-related charges, cloud computing costs and certain storm-related vehicle damages, partially offset by certain litigation settlements and a loss recovery settlement. For the three and nine months ended September 30, 2023, primarily includes certain IT-related charges, certain storm-related vehicle damages and certain professional fees and charges related to the settlement of bankruptcy claims, partially offset by a loss recovery settlement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Hertz Global Holdings, Inc. is a holding company and its principal, wholly owned subsidiary is The Hertz Corporation. Hertz Global consolidates Hertz for financial statement purposes, and Hertz comprises approximately the entire balance of Hertz Global’s assets, liabilities and operating cash flows. In addition, Hertz’s operating revenues and operating expenses comprise nearly 100% of Hertz Global’s revenues and operating expenses. As such, Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") that follows herein is for Hertz and also applies to Hertz Global in all material respects, unless otherwise noted. Differences between the operations and results of Hertz and Hertz Global are separately disclosed and explained. We sometimes use the words “we,” “our,” “us” and the “Company” in this MD&A for disclosures that relate to all of Hertz and Hertz Global.
The statements in this MD&A regarding industry outlook, our expectations regarding the performance of our business and the other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties. The following MD&A provides information that we believe to be relevant to an understanding of our consolidated financial condition and results of operations. Our actual results may differ materially from those contained in or implied by any forward-looking statements.
This MD&A should be read in conjunction with the MD&A presented in our 2023 Form 10-K together with the sections entitled “Cautionary Note Regarding Forward-Looking Statements,” Part II, Item 1A, "Risk Factors,” and our unaudited condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024 (this "Quarterly Report"), which include additional information about our accounting policies, practices and the transactions underlying our financial results. The preparation of our unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts in our unaudited condensed consolidated financial statements and the accompanying notes including revenue earning vehicle depreciation and various claims and contingencies related to lawsuits, taxes and other matters arising during the normal course of business. We apply our best judgment, our knowledge of existing facts and circumstances and our knowledge of actions that we may undertake in the future in determining the estimates that will affect our unaudited condensed consolidated financial statements. We evaluate our estimates on an ongoing basis using our historical experience, as well as other factors we believe to be appropriate under the circumstances, such as current economic conditions, and adjust or revise our estimates as circumstances change. As future events and their effects cannot be determined with precision, actual results may differ from these estimates.
In this MD&A, we refer to the following non-GAAP measure and key metrics:
•Adjusted Corporate EBITDA – important non-GAAP measure to management because it allows management to assess the operational performance of our business, exclusive of certain items, and allows management to assess the performance of the entire business on the same basis as the segment measure of profitability. Management believes that it is important to investors for the same reasons it is important to management and because it allows investors to assess our operational performance on the same basis that management uses internally. Adjusted EBITDA, the segment measure of profitability and accordingly a GAAP measure, is calculated exclusive of certain items which are largely consistent with those used in the calculation of Adjusted Corporate EBITDA.
•Vehicle Utilization – important key metric to management and investors as it is the measurement of the proportion of our vehicles that are being used to generate revenues relative to rentable fleet capacity. Higher Vehicle Utilization means more vehicles are being utilized to generate revenues.
•Depreciation Per Unit Per Month – important key metric to management and investors as depreciation of revenue earning vehicles and lease charges is one of our largest expenses for the vehicle rental business and is driven by the number of vehicles, expected residual values at the expected time of disposal and expected hold period of the vehicles. Depreciation Per Unit Per Month is reflective of how we are managing the costs of our vehicles and facilitates a comparison with other participants in the vehicle rental industry.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
•Total Revenue Per Transaction Day ("Total RPD," also referred to as "pricing") – important key metric to management and investors as it represents a measurement of the changes in underlying pricing in the vehicle rental business and encompasses the elements in vehicle rental pricing that management has the ability to control.
•Total Revenue Per Unit Per Month ("Total RPU") – important key metric to management and investors as it provides a measure of revenue productivity relative to the number of vehicles in our rental fleet whether owned or leased ("Average Rentable Vehicles"). Average Rentable Vehicles excludes vehicles for sale on our retail lots or actively in the process of being sold through other disposition channels.
•Transaction Days – important key metric to management and investors as it represents the number of revenue generating days ("volume"). It is used as a component to measure Total RPD and Vehicle Utilization. Transaction Days represent the total number of 24-hour periods, with any partial period counted as one Transaction Day, that vehicles were on rent (the period between when a rental contract is opened and closed) in a given period. Thus, it is possible for a vehicle to attain more than one Transaction Day in a 24-hour period.
Our non-GAAP measure and key metrics should not be considered in isolation and should not be considered superior to, or a substitute for, financial measures calculated in accordance with U.S. GAAP. The above non-GAAP measure and key metrics are defined, and the non-GAAP measure is reconciled to its most comparable U.S. GAAP measure, in the "Footnotes to the Results of Operations and Selected Operating Data by Segment Tables" section of this MD&A.
OUR COMPANY
Hertz Holdings was incorporated in Delaware in 2015 to serve as the top-level holding company for Rental Car Intermediate Holdings, LLC, which wholly owns Hertz, Hertz Global's primary operating company. Hertz was incorporated in Delaware in 1967 and is a successor to corporations that have been engaged in the vehicle rental and leasing business since 1918.
We operate our vehicle rental business globally from company-owned and franchisee locations in North America, Europe, Africa, Asia, Australia, the Caribbean, Latin America, the Middle East and New Zealand. We also sell vehicles through Hertz Car Sales.
OVERVIEW OF OUR BUSINESS AND OPERATING ENVIRONMENT
Our Business
We are engaged principally in the business of renting vehicles primarily through our Hertz, Dollar and Thrifty brands. Our profitability is primarily a function of the volume, mix and pricing of rental transactions and the utilization of vehicles, the related ownership cost of vehicles and other operating costs. Significant changes in the purchase price or residual values of vehicles or interest rates can have a significant effect on our profitability depending on our ability to adjust pricing for these changes. We continue to balance our mix of EVs, non-program vehicles and program vehicles based on market conditions, including residual values. Our business requires significant expenditures for vehicles, and as such, we require substantial liquidity to finance such expenditures.
Our strategy is focused on excellence in execution of our rental operations, presenting distinct product offerings through each of our brands, building on our leadership in ride share and selling vehicles from the fleet directly to consumers.
Our revenues are primarily derived from rental and related charges and consist of worldwide vehicle rental revenues from all company-operated vehicle rental operations and charges to customers for the reimbursement of costs incurred relating to airport concession fees and vehicle license fees, the fueling and electric charging of vehicles and revenues associated with value-added services, including the sale of loss or collision damage waivers, theft protection, liability and personal accident/effects insurance coverage, premium emergency roadside service and
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
other products and fees. Also included are collections from customers for vehicle damages, ancillary revenues associated with retail vehicle sales and certain royalty fees from our franchisees (such fees are approximately 2% of total revenues each period).
Our expenses primarily consist of:
•Direct vehicle and operating expense ("DOE"), primarily wages and related benefits; commissions and concession fees paid to airport authorities, travel agents and others; facility, self-insurance and reservation costs; and other costs relating to the operation and rental of revenue earning vehicles, such as collision and damage, maintenance, fuel and electric charging costs;
•Depreciation expense and lease charges, net relating to revenue earning vehicles, including gains and losses and related costs associated with the disposal of vehicles;
•Depreciation and amortization expense relating to non-vehicle assets;
•Selling, general and administrative expense ("SG&A"), which includes advertising costs and administrative personnel costs, along with costs for information technology and business transformation initiatives; and
•Interest expense, net.
Our vehicle rental operations are a seasonal business, with decreased levels of business in the winter months and heightened activity during the spring and summer months ("our peak season") for the majority of countries where we generate our revenues. To accommodate increased demand, we seek to increase our available fleet and staff. As demand declines, we seek to reduce our fleet and staff accordingly. As a result, we strive to maintain a flexible workforce, with a significant number of part-time and seasonal workers. A number of our other major operating costs, including airport concession fees, commissions and vehicle liability expenses, are directly related to revenues or transaction volumes. Certain operating expenses, including real estate taxes, rent, insurance, utilities, maintenance and other facility-related expenses, and minimum staffing costs, remain fixed and cannot be adjusted for demand.
Our Reportable Segments
We have identified two reportable segments, which are consistent with our operating segments and organized based on the products and services provided and the geographic areas in which business is conducted, as follows:
•Americas RAC – Rental of vehicles, as well as sales of value-added services, in the U.S., Canada, Latin America and the Caribbean; and
•International RAC – Rental of vehicles, as well as sales of value-added services, in locations other than the U.S., Canada, Latin America and the Caribbean.
In addition to the above reportable segments, we have corporate operations. We assess performance and allocate resources based upon the financial information for our operating segments.
Three and Nine Months Ended September 30, 2024 Operating Overview
As of September 30, 2024, the sale of the EV Disposal Groups was approximately 95% complete. During the nine months ended September 30, 2024, we incurred incremental depreciation charges, primarily in the first half of 2024, of $176 million for the write-down on the vehicles, of which $165 million and $11 million are associated with our Americas RAC and International RAC segments, respectively, and $47 million for losses incurred on the vehicles sold, primarily in our Americas RAC segment. Refer to Note 5, "Revenue Earning Vehicles," in Part I, Item 1 of this Quarterly Report for additional information.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The charts below provide the period-over-period change for several key factors influencing our results for the three and nine months ended September 30, 2024 and 2023.
(1) Includes impact of foreign currency exchange at average rates ("fx").
(2) Results shown are in constant currency as of December 31, 2023.
(3) The percentages shown in this chart reflect Vehicle Utilization versus period-over-period change.
NM - Not meaningful
For more information on the above, see the discussion of our results on a consolidated basis and by segment that follows herein. In this MD&A, certain amounts in the following tables are denoted in millions. Amounts such as percentages are calculated from the underlying numbers in thousands, and as a result, may not agree to the amount when calculated from the tables in millions.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Critical Accounting Estimates
Long-Lived Assets
Our long-lived assets consist primarily of revenue earning vehicles, ROU assets and property and equipment. We make estimates about the expected economic lives, projected residual values and the potential for impairment. We amortize long-lived assets using the straight-line method over the estimated economic lives. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Factors which could be indicators of impairment include, but are not limited to, (i) significant decrease in market prices of the assets, (ii) current period operating or cash flow losses or a projection or forecast that demonstrates continuing losses and (iii) significant changes in the estimated useful lives. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the estimated fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying value or estimated fair value less costs to sell.
During the third quarter of 2024, at the conclusion of our historical peak rental season, there was a reduction in the cash flow projections in the Americas RAC and International RAC segments, indicating that the carrying values of their long-lived assets may not be recoverable. The reduction was largely attributed to the acceleration of the rental fleet rotation in our segments, where shortening the useful life reduced the potential future cash flows expected to be earned from the fleet. Operating cash flow projections also deteriorated from delayed timing of operating cost improvements and longer timeframes associated with revenue maximization initiatives. As a result, we tested the recoverability of our Long-Lived Assets in our Americas RAC and International RAC segments and determined that an impairment existed.
Effective August 31, 2024, the Long-Lived Assets were written down to their estimated fair values, resulting in the recognition of an impairment charge of $1.0 billion, of which $923 million and $125 million were associated with our revenue earning vehicles and ROU assets, respectively. As the Long-Lived Assets impairment was recognized as of August 31, 2024, depreciation expense during the third quarter of 2024 includes two months of depreciation at pre-impairment rates and one month at post-impairment rates.
To the extent there are further changes in market conditions or the performance of our long-lived assets, there is a possibility that we could incur additional impairments in the future. Refer to Note 3,"Long-Lived Assets Impairment," in Part I, Item 1 of this Quarterly Report for additional information.
Recoverability of Goodwill and Indefinite-lived Intangible Assets
As of September 30, 2024, we tested the recoverability of our goodwill and indefinite-lived intangible assets due to the impact related to the reduction in the cash flow projections in our Americas RAC and International RAC segments. The quantitative fair value test utilized our most recent cash flow projections, including a range of potential outcomes, along with a long-term growth rate of 2% and a range of discount rates between 20.0% and 12.0%. Based on the quantitative tests, no impairments were recorded in the third quarter of 2024. However, the fair value of the Dollar and Thrifty tradename, which is an indefinite-lived intangible asset, in our Americas RAC segment was in excess by 12% of the carrying values of $934 million.
Further deterioration in our cash flow projections or the weighted average cost of capital assumptions may result in an impairment charge to earnings in future quarters. We will continue to closely monitor actual results versus our expectations and the resulting impact to our assumptions about future estimated cash flows and the weighted average cost of capital. If our expectations of the operating results, both in magnitude or timing, do not materialize, or if our weighted average cost of capital increases, we may be required to record goodwill and indefinite-lived intangible asset impairment charges, which could be material.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS – HERTZ
Three Months Ended September 30,
Percent Increase/(Decrease)
Nine Months Ended September 30,
Percent Increase/(Decrease)
($ In millions)
2024
2023
2024
2023
Total revenues
$
2,576
$
2,703
(5)%
$
7,009
$
7,187
(2)%
Depreciation of revenue earning vehicles and lease charges, net
937
501
87
2,941
1,211
NM
Direct vehicle and operating expenses
1,470
1,499
(2)
4,276
4,067
5
Non-vehicle depreciation and amortization
34
33
4
107
100
7
Selling, general and administrative expenses
189
209
(9)
594
715
(17)
Interest expense, net:
Vehicle
157
162
(3)
447
405
10
Non-vehicle
89
63
43
252
170
49
Interest expense, net
246
225
10
699
575
22
Other (income) expense, net
5
5
(6)
2
12
(88)
(Gain) from the sale of non-vehicle capital assets
—
—
—
—
(162)
(100)
Bankruptcy-related litigation reserve
288
—
NM
288
—
NM
Long-Lived Assets impairment
1,048
—
NM
1,048
—
NM
Income (loss) before income taxes
(1,641)
231
NM
(2,946)
669
NM
Income tax (provision) benefit
287
68
NM
291
184
59
Net income (loss)
$
(1,354)
$
299
NM
$
(2,655)
$
853
NM
Adjusted Corporate EBITDA(a)
$
(157)
$
359
NM
$
(1,184)
$
943
NM
The footnote in the table above is shown in the "Footnotes to the Results of Operations and Selected Operating Data by Segment Tables" section of this MD&A.
NM - Not meaningful
Three Months Ended September 30, 2024 Compared with Three Months Ended September 30, 2023
Total revenues decreased $127 million in the third quarter of 2024 compared to the same period in 2023, resulting from a decrease of $110 million and $16 million in our Americas RAC and International RAC segments, respectively. The decrease in total revenues was due primarily to lower volume.
Depreciation of revenue earning vehicles and lease charges, net increased $436 million in the third quarter of 2024 compared to the same period in 2023, of which $408 million and $29 million were attributed to our Americas RAC and International RAC segments, respectively. Depreciation of revenue earning vehicles and lease charges, net increased due primarily to (i) deterioration in the residual values at the expected time of disposal, (ii) decreased holding periods resulting from the acceleration of our rental fleet rotation and (ii) per unit losses recognized on vehicle dispositions during the third quarter of 2024 compared to per unit gains recognized in the same period in 2023, partially offset by lower Average Vehicles. We expect that depreciation of revenue earning vehicles and lease charges, net will continue to be impacted during the fourth quarter of 2024 by an uncertain residual environment and heightened disposals as part of our fleet refresh initiatives versus the same period in 2023.
DOE decreased $30 million in the third quarter of 2024 compared to the same period in 2023, resulting from a decrease of $39 million in our Americas RAC segment, partially offset by an increase of $13 million in our International RAC segment. DOE decreased due primarily to lower volume largely in our Americas RAC segment, partially offset by increased self-insurance liabilities as a result of adverse experience and case development and increased vehicle in-fleeting costs related to our accelerated fleet rotation in 2024.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SG&A decreased $19 million in the third quarter of 2024 compared to the same period in 2023 driven primarily by a decrease of $36 million associated with our corporate operations, partially offset by an increase of $16 million in our International RAC segment. The decrease in SG&A associated with our corporate operations was due primarily to intercompany royalty assessment fees received from our International RAC and Americas RAC segments, reduced non-cash stock-based compensation charges and decreased third-party spend. SG&A in our International RAC segment increased due primarily to higher intercompany royalty assessment fees paid to our corporate operations and the release of a litigation reserve in the 2023 period.
Vehicle interest expense, net decreased $5 million in the third quarter of 2024 compared to the same period in 2023 due primarily to interest rate mix, partially offset by higher interest rates.
Non-vehicle interest expense, net increased $27 million in the third quarter of 2024 compared to the same period in 2023 due primarily to higher debt levels and higher benchmark rates.
In the third quarter of 2024, we recognized expense of $288 million in our corporate operations related to an increase to an existing bankruptcy-related litigation reserve, as disclosed in Note 14, "Contingencies and Off-Balance Sheet Commitments," in Part I, Item 1 of this Quarterly Report.
In the third quarter of 2024, we recognized an impairment charge of $1.0 billion associated with the Long-Lived Assets in our Americas RAC and International RAC segments, as disclosed in Note 3,"Long-Lived Assets Impairment," in Part I, Item 1 of this Quarterly Report.
For the three months ended September 30, 2024, we recorded a tax benefit of $287 million, which resulted in an effective tax rate of 17%. For the three months ended September 30, 2023, we recorded a tax benefit of $68 million, which resulted in an effective tax rate of (30)%. The change in taxes in the three months ended September 30, 2024 compared to the same period in 2023 was driven primarily by lower pretax income, changes in valuation allowances on deferred tax assets and lower estimated EV credits.
Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023
Total revenues decreased $178 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due primarily to lower pricing, partially offset by higher volume. Total revenues in our Americas RAC segment decreased $189 million due primarily to lower pricing, partially offset by an increase of $9 million in our International RAC segment resulting primarily from higher volume.
Depreciation of revenue earning vehicles and lease charges, net increased $1.7 billion in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, of which $1.6 billion is attributable to our Americas RAC segment. Depreciation of revenue earning vehicles and lease charges, net increased due primarily to (i) deterioration in the residual values at the expected time of disposal, (ii) decreased holding periods resulting from the acceleration of our rental fleet rotation (iii) per unit losses recognized on vehicle dispositions during the nine months ended nine month ended September 30, 2024 compared to per unit gains recognized in the same period in 2023 and (iv) write-downs on the carrying values of the EVs classified as held for sale, primarily in the first half of 2024 in our Americas RAC segment. We expect that depreciation of revenue earning vehicles and lease charges, net will continue to be impacted during the fourth quarter of 2024 by an uncertain residual environment and heightened disposals as part of our fleet refresh initiatives versus the same period in 2023.
DOE increased $210 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 with increases of $133 million and $80 million in our Americas RAC and International RAC segments, respectively. The increase in DOE was due primarily to increased self-insurance liabilities as a result of adverse experience and case development, increased collision and damage costs, a loss recovery settlement in the second quarter of 2023, increased vehicle in-fleeting costs and higher personnel costs.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SG&A decreased $121 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 driven primarily by a decrease of $166 million associated with our corporate operations, partially offset by increases of $39 million and $7 million in our International RAC and Americas RAC segments, respectively. The decrease in SG&A associated with our corporate operations was due primarily to a non-cash stock-based compensation gain related to forfeitures of former CEO awards in March 2024, intercompany royalty assessment fees received from our International RAC and Americas RAC segments, decreased third-party spend and reduced non-cash stock-based compensation charges, partially offset by increased restructuring related costs. SG&A in our International RAC segment increased due primarily to higher intercompany royalty assessment fees paid to our corporate operations, increased advertising spend, increased restructuring related costs and the release of a litigation reserve in the 2023 period. SG&A in our Americas RAC segment increased due primarily to increased restructuring related costs, higher intercompany royalty assessment fees paid to our corporate operations and increased personnel costs, partially offset by reduced advertising spend.
Vehicle interest expense, net increased $42 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due primarily to higher interest rates and increased debt levels.
Non-vehicle interest expense, net increased $83 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due primarily to higher debt levels and higher benchmark rates.
In the nine months ended September 30, 2024, we recognized expense of $288 million in our corporate operations related to an increase to an existing bankruptcy-related litigation reserve, as disclosed in Note 14, "Contingencies and Off-Balance Sheet Commitments," in Part I, Item 1 of this Quarterly Report.
In the nine months ended September 30, 2024, we recognized an impairment charge of $1.0 billion associated with the Long-Lived Assets in our Americas RAC and International RAC segments, as disclosed in Note 3,"Long-Lived Assets Impairment," in Part I, Item 1 of this Quarterly Report.
In the nine months ended September 30, 2023, we recognized a gain of $162 million on the sale of certain non-vehicle capital assets in our Americas RAC segment, as disclosed in Note 4, "Divestitures," in Part I, Item 1 of this Quarterly Report.
For the nine months ended September 30, 2024, we recorded a tax benefit of $291 million, which resulted in an effective tax rate of 10%. For the nine months ended September 30, 2023, we recorded a tax benefit of $184 million, which resulted in an effective tax rate of (27)%. The change in tax in the nine months ended September 30, 2024 compared to the same period in 2023 was driven primarily by lower pretax income, changes in valuation allowances on deferred tax assets and lower estimated EV credits.
CONSOLIDATED RESULTS OF OPERATIONS – HERTZ GLOBAL
The above discussion for Hertz also applies to Hertz Global.
Hertz Global had income of $21 million and $272 million from the change in fair value of Public Warrants that were incremental to Hertz for the third quarter and nine months ended September 30, 2024, respectively, included in Hertz Global's unaudited condensed consolidated statements of operations in Part I, Item 1 of this Quarterly Report.
Hertz Global had income of $328 million and $110 million from the change in fair value of Public Warrants that were incremental to Hertz for the third quarter and nine months ended September 30, 2023, respectively, included in Hertz Global's unaudited condensed consolidated statements of operations in Part I, Item 1 of this Quarterly Report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS AND SELECTED OPERATING DATA BY SEGMENT
Americas RAC
Three Months Ended September 30,
Percent Increase/(Decrease)
Nine Months Ended September 30,
Percent Increase/(Decrease)
($ In millions, except as noted)
2024
2023
2024
2023
Total revenues
$
2,062
$
2,172
(5)%
$
5,729
$
5,917
(3)%
Depreciation of revenue earning vehicles and lease charges, net
$
822
$
414
98
$
2,603
$
1,035
NM
Direct vehicle and operating expenses
$
1,202
$
1,241
(3)
$
3,553
$
3,419
4
Direct vehicle and operating expenses as a percentage of total revenues
58
%
57
%
62
%
58
%
Non-vehicle depreciation and amortization
$
28
$
27
4
$
81
$
82
(1)
Selling, general and administrative expenses
$
113
$
114
(1)
$
374
$
367
2
Selling, general and administrative expenses as a percentage of total revenues
5
%
5
%
7
%
6
%
Vehicle interest expense
$
124
$
132
(6)
$
363
$
338
7
Long-Lived Assets impairment
$
865
$
—
NM
$
865
$
—
NM
Adjusted EBITDA
$
(169)
$
302
NM
$
(1,060)
$
894
NM
Transaction Days (in thousands)(b)
32,693
34,278
(5)
95,469
94,626
1
Average Vehicles (in whole units)(f)
463,467
467,916
(1)
460,638
446,101
3
Average Rentable Vehicles (in whole units)(c)
432,608
442,353
(2)
434,714
422,595
3
Vehicle Utilization(c)
82
%
84
%
80
%
82
%
Total RPD (in dollars)(d)
$
63.20
$
63.45
—
$
60.09
$
62.59
(4)
Total RPU Per Month (in whole dollars)(e)
$
1,592
$
1,638
(3)
$
1,466
$
1,557
(6)
Depreciation Per Unit Per Month (in whole dollars)(f)
$
592
$
295
100%
$
629
$
258
NM
Percentage of program vehicles as of period end
4
%
1
%
4
%
1
%
Footnotes to the table above are shown in the "Footnotes to the Results of Operations and Selected Operating Data by Segment Tables" section of this MD&A.
NM - Not meaningful
Three Months Ended September 30, 2024 Compared with Three Months Ended September 30, 2023
Total Americas RAC revenues decreased $110 million in the third quarter of 2024 compared to the same period in 2023 due primarily to lower volume. Transaction Days declined due primarily to lower volumes in most customer channels. Total RPD was primarily flat in the third quarter of 2024 compared to the same period in 2023. Airport revenues comprised 70% of total revenues for the segment in the third quarter of 2024 compared to 69% in the same period in 2023.
Depreciation of revenue earning vehicles and lease charges, net for Americas RAC increased $408 million in the third quarter of 2024 compared to the same period in 2023 due primarily to (i) deterioration in residual values at the expected time of disposal, (ii) decreased holding periods resulting in part from the acceleration of our rental fleet rotation and (iii) per unit losses recognized on vehicle dispositions during the third quarter of 2024 compared to per unit gains recognized in the same period in 2023, partially offset by a decrease in Average Vehicles. We expect that depreciation of revenue earning vehicles and lease charges, net will continue to be impacted during the fourth
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
quarter of 2024 by an uncertain residual environment and heightened disposals as part of our fleet refresh initiatives versus the same period in 2023.
DOE for Americas RAC decreased $39 million in the third quarter of 2024 compared to the same period in 2023 due primarily to lower volume as well as lower personnel costs and decreased collision and damage costs, partially offset by increased self-insurance liabilities as a result of adverse experience and case development and increased vehicle in-fleeting costs related to our accelerated fleet rotation in 2024.
SG&A for Americas RAC in the third quarter of 2024 was primarily flat compared to the same period in 2023 due primarily to reduced advertising spend, partially offset by increased personnel costs and higher intercompany royalty assessment fees paid to our corporate operations.
Vehicle interest expense for Americas RAC decreased $8 million in the third quarter of 2024 compared to the same period in 2023 due primarily to interest rate mix and lower debt levels, partially offset by higher average interest rates resulting primarily from the issuances of new HVF III Series Notes in the third quarter of 2024 and higher benchmark rates on the HVF III 2021-A Notes.
Americas RAC recognized an impairment charge of $865 million in the third quarter of 2024 associated with its Long-Lived Assets, of which $740 million and $125 million related to its revenue earning vehicles and ROU assets, respectively. Refer to Note 3,"Long-Lived Assets Impairment," in Part I, Item 1 of this Quarterly Report for further details.
Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023
Total Americas RAC revenues decreased $189 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due primarily to lower pricing. Total RPD declined due primarily to lower rates in most customer channels. Transaction Days was generally consistent with the same period in 2023. Airport revenues comprised 69% of total revenues for the segment in the nine months ended September 30, 2024 and in the nine months ended September 30, 2023.
Depreciation of revenue earning vehicles and lease charges, net for Americas RAC increased $1.6 billion in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due primarily to (i) deterioration in residual values at the expected time of disposal, (ii) decreased holding periods resulting in part from the acceleration of our rental fleet rotation, (iii) per unit losses recognized on vehicle dispositions during the nine months ended September 30, 2024 compared to per unit gains recognized in the same period in 2023 and (iv) write-downs on the carrying values of the EVs classified as held for sale, primarily in the first half of 2024. We expect that depreciation of revenue earning vehicles and lease charges, net will continue to be impacted during the fourth quarter of 2024 by an uncertain residual environment and heightened disposals as part of our fleet refresh initiatives versus the same period in 2023.
DOE for Americas RAC increased $133 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due primarily to increased self-insurance liabilities as a result of adverse experience and case development, a loss recovery in the second quarter of 2023, increased collision and damage costs and increased vehicle in-fleeting costs related to our accelerated fleet rotation in the third quarter of 2024.
SG&A for Americas RAC increased $7 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due primarily to increased restructuring related costs, higher intercompany royalty assessment fees paid to our corporate operations and increased personnel costs, partially offset by reduced advertising spend.
Vehicle interest expense for Americas RAC increased $25 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due primarily to higher average interest rates resulting primarily from the issuances of new HVF III Series Notes in 2024 and higher benchmark rates on the HVF III 2021-A Notes, partially offset by interest rate mix and lower debt levels. Vehicle interest expense in our Americas RAC
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
segment was also impacted by the unwind of certain of its interest rate caps in the first quarter of 2023 resulting in the realization of $88 million of previously unrealized gains, partially offset by a $98 million realized gain for which there was no comparable transaction in 2024.
Americas RAC recognized an impairment charge of $865 million in the nine months ended September 30, 2024 associated with its Long-Lived Assets, of which $740 million and $125 million related to its revenue earning vehicles and ROU assets, respectively. Refer to Note 3,"Long-Lived Assets Impairment," in Part I, Item 1 of this Quarterly Report for further details.
International RAC
Three Months Ended September 30,
Percent Increase/(Decrease)
Nine Months Ended September 30,
Percent Increase/(Decrease)
($ in millions, except as noted)
2024
2023
2024
2023
Total revenues
$
514
$
531
(3)%
$
1,280
$
1,270
1%
Depreciation of revenue earning vehicles and lease charges, net
$
115
$
87
33
$
338
$
176
92
Direct vehicle and operating expenses
$
271
$
258
5
$
731
$
651
12
Direct vehicle and operating expenses as a percentage of total revenues
53
%
49
%
57
%
51
%
Non-vehicle depreciation and amortization
$
3
$
3
10
$
10
$
8
28
Selling, general and administrative expenses
$
57
$
40
40
$
160
$
122
32
Selling, general and administrative expenses as a percentage of total revenues
11
%
8
%
13
%
10
%
Vehicle interest expense
$
33
$
30
9
$
84
$
67
26
Long-Lived Assets impairment
$
183
$
—
NM
$
183
$
—
NM
Adjusted EBITDA
$
63
$
109
(42)
$
30
$
258
(88)
Transaction Days (in thousands)(b)
8,605
8,817
(2)
22,404
21,962
2
Average Vehicles (in whole units)(f)
120,049
122,572
(2)
108,772
105,997
3
Average Rentable Vehicles (in whole units)(c)
117,466
119,914
(2)
106,593
103,861
3
Vehicle Utilization(c)
80
%
80
%
77
%
77
%
Total RPD (in dollars)(d)
$
60.45
$
61.47
(2)
$
58.37
$
59.07
(1)
Total RPU Per Month (in whole dollars)(e)
$
1,476
$
1,507
(2)
$
1,363
$
1,388
(2)
Depreciation Per Unit Per Month (in whole dollars)(f)
$
324
$
240
35
$
353
$
188
87
Percentage of program vehicles as of period end
33
%
33
%
33
%
33
%
Footnotes to the table above are shown in the "Footnotes to the Results of Operations and Selected Operating Data by Segment Tables" section of this MD&A.
NM - Not meaningful
Three Months Ended September 30, 2024 Compared with Three Months Ended September 30, 2023
Total revenues for International RAC decreased $16 million in the third quarter of 2024 compared to the same period in 2023 due primarily to lower volume and lower pricing. Transaction Days decreased due primarily to lower volume, primarily in Europe, in certain business categories, partially offset by higher volume in certain leisure categories. Total RPD declined in the third quarter of 2024 compared to the same period in 2023 due primarily to lower rates in most customer channels.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Depreciation of revenue earning vehicles and lease charges, net for International RAC in the third quarter of 2024 increased $29 million compared to the same period in 2023 due primarily to (i) per unit losses recognized on vehicle dispositions in the third quarter of 2024 compared to per unit gains recognized in the same period in 2023 and (ii) deterioration in residual values at the expected time of disposal. We expect that depreciation of revenue earning vehicles and lease charges, net will continue to be impacted during the fourth quarter of 2024 by an uncertain residual environment and heightened disposals as part of our fleet refresh initiatives versus the same period in 2023.
DOE for International RAC increased $13 million in the third quarter of 2024 compared to the same period in 2023 due primarily to higher personnel costs, increased vehicle in-fleeting costs, increased self-insurance liabilities as a result of adverse experience and case development and increased collision and damage costs.
SG&A for International RAC in the third quarter of 2024 increased $16 million compared to the same period in 2023 due primarily to higher intercompany royalty assessment fees paid to our corporate operations and the release of a litigation reserve in the 2023 period.
Vehicle interest expense for International RAC increased $3 million in the third quarter of 2024 compared to the same period in 2023 due primarily to increased debt levels, partially offset by lower market interest rates.
International RAC recognized an impairment charge of $183 million in the third quarter of 2024 associated with its Long-Lived Assets, as disclosed in Note 3,"Long-Lived Assets Impairment," in Part I, Item 1 of this Quarterly Report.
Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023
Total revenues for International RAC increased $9 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due primarily to higher volume, partially offset by lower pricing. Transaction Days increased driven primarily by higher volume in certain leisure categories, primarily in Europe. Total RPD declined resulting primarily from lower rates in certain leisure categories.
Depreciation of revenue earning vehicles and lease charges, net for International RAC increased $162 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due primarily to (i) per unit losses recognized on vehicle dispositions in the nine months ended September 30, 2024 compared to per unit gains recognized in the same period in 2023 and (ii) deterioration in the residual values at the expected time of disposal. We expect that depreciation of revenue earning vehicles and lease charges, net will continue to be impacted during the fourth quarter of 2024 by an uncertain residual environment and heightened disposals as part of our fleet refresh initiatives versus the same period in 2023.
DOE for International RAC increased $80 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due primarily to higher personnel costs, increased collision and damage costs and increased self-insurance liabilities as a result of adverse experience and case development.
SG&A for International RAC increased $39 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due primarily to higher intercompany royalty assessment fees paid to our corporate operations, increased advertising spend, increased restructuring related costs and the release of a litigation reserve in the 2023 period.
Vehicle interest expense for International RAC increased $17 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due primarily to higher debt levels and higher market interest rates.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
International RAC recognized an impairment charge of $183 million in the nine months ended September 30, 2024 associated with its Long-Lived Assets, as disclosed in Note 3,"Long-Lived Assets Impairment," in Part I, Item 1 of this Quarterly Report.
Footnotes to the Results of Operations and Selected Operating Data by Segment Tables
(a)Adjusted Corporate EBITDA is calculated as net income (loss), adjusted for income taxes; non-vehicle depreciation and amortization; non-vehicle debt interest, net; vehicle debt-related charges; restructuring and restructuring related charges; unrealized (gains) losses from financial instruments; change in fair value of Public Warrants and certain other miscellaneous or non-recurring items. When evaluating our operating performance, investors should not consider Adjusted Corporate EBITDA in isolation of, or as a substitute for, measures of our financial performance determined in accordance with U.S. GAAP. The reconciliations to the most comparable consolidated U.S. GAAP measure are presented below:
Hertz
Three Months Ended September 30,
Nine Months Ended September 30,
(In millions)
2024
2023
2024
2023
Net income (loss)
$
(1,354)
$
299
$
(2,655)
$
853
Adjustments:
Income tax provision (benefit)
(287)
(68)
(291)
(184)
Non-vehicle depreciation and amortization
34
33
107
100
Non-vehicle debt interest, net
103
63
266
170
Vehicle debt-related charges(1)
11
11
33
31
Restructuring and restructuring related charges(2)
1
2
45
10
Unrealized (gains) losses on financial instruments(3)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Hertz Global
Three Months Ended September 30,
Nine Months Ended September 30,
(In millions)
2024
2023
2024
2023
Net income (loss)
$
(1,332)
$
629
$
(2,383)
$
964
Adjustments:
Income tax provision (benefit)
(288)
(70)
(291)
(185)
Non-vehicle depreciation and amortization
34
33
107
100
Non-vehicle debt interest, net
103
63
266
170
Vehicle debt-related charges(1)
11
11
33
31
Restructuring and restructuring related charges(2)
1
2
45
10
Unrealized (gains) losses on financial instruments(3)
(16)
1
(8)
107
Gain on sale of non-vehicle capital assets(4)
—
—
—
(162)
Non-cash stock-based compensation forfeitures(5)
—
—
(64)
—
Bankruptcy-related litigation reserve(6)
288
—
288
—
Long-Lived Assets impairment(7)
1,048
—
1,048
—
Change in fair value of Public Warrants(9)
(21)
(328)
(272)
(110)
Other items(8)
15
18
47
18
Adjusted Corporate EBITDA
$
(157)
$
359
$
(1,184)
$
943
(1)Represents vehicle debt-related charges relating to the amortization of deferred financing costs and debt discounts and premiums.
(2)Represents charges incurred under restructuring actions as defined in U.S. GAAP. Also includes restructuring related charges such as incremental costs incurred related to personnel reductions and closure of underperforming locations.
(3)Represents unrealized (gains) losses on derivative financial instruments. In 2023, also includes the realization of $88 million of previously unrealized gains resulting from the unwind of certain interest rate caps in the first quarter of 2023. See Note 12, "Financial Instruments," in Part I, Item 1 of this Quarterly Report.
(4)Represents gain on sale of certain non-vehicle capital assets sold in March 2023. See Note 4, "Divestitures," in Part I, Item 1 of this Quarterly Report.
(5)Represents former CEO awards forfeited in March 2024. See Note 11, "Stock-Based Compensation," in Part I, Item 1 of this Quarterly Report.
(6)Represents an increase to an existing bankruptcy-related litigation reserve recorded in September 2024. See Note 14, "Contingencies and Off-Balance Sheet Commitments," in Part I, Item 1 of this Quarterly Report.
(7)Represents Long-Lived Assets impairment charges recognized in the third quarter of 2024. See Note 3,"Long-Lived Assets Impairment," in Part I, Item 1 of this Quarterly Report.
(8)Represents miscellaneous items. For the three and nine months ended September 30, 2024, primarily includes certain IT-related charges, cloud computing costs and certain storm-related vehicle damages, partially offset by certain litigation settlements and a loss recovery settlement. For the three and nine months ended September 30, 2023, primarily includes certain IT-related charges, certain storm-related vehicle damages and certain professional fees and charges related to the settlement of bankruptcy claims, partially offset by a loss recovery settlement.
(9)Represents the change in fair value during the reporting period for Hertz Global's outstanding Public Warrants.
(b)Transaction Days represents the total number of 24-hour periods, with any partial period counted as one Transaction Day, that vehicles were on rent (the period between when a rental contract is opened and closed) in a given period. Thus, it is possible for a vehicle to attain more than one Transaction Day in a 24-hour period.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(c)Vehicle Utilization is calculated by dividing total Transaction Days by Available Car Days. Available Car Days represents Average Rentable Vehicles multiplied by the number of days in a given period. Average Rentable Vehicles excludes vehicles for sale on our retail lots or actively in the process of being sold through other disposition channels and is determined using a simple average of such vehicles at the beginning and end of a given period.
Americas RAC
International RAC
Three Months Ended September 30,
2024
2023
2024
2023
Transaction Days (in thousands)
32,693
34,278
8,605
8,817
Average Rentable Vehicles (in whole units)
432,608
442,353
117,466
119,914
Number of days in period (in whole units)
92
92
92
92
Available Car Days (in thousands)
39,816
40,709
10,813
11,035
Vehicle Utilization
82
%
84
%
80
%
80
%
Nine Months Ended September 30,
2024
2023
2024
2023
Transaction Days (in thousands)
95,469
94,626
22,404
21,962
Average Rentable Vehicles (in whole units)
434,714
422,595
106,593
103,861
Number of days in period (in whole units)
274
273
274
273
Available Car Days (in thousands)
119,143
115,433
29,225
28,389
Vehicle Utilization
80
%
82
%
77
%
77
%
(d)Total RPD is calculated as revenues with all periods adjusted to eliminate the effect of fluctuations in foreign currency exchange rates ("Total Revenues - adjusted for foreign currency"), divided by the total number of Transaction Days. Our management believes eliminating the effect of fluctuations in foreign currency exchange rates is useful in analyzing underlying trends. The calculation of Total RPD is shown below:
Americas RAC
International RAC
Three Months Ended September 30,
($ in millions, except as noted)
2024
2023
2024
2023
Revenues
$
2,062
$
2,172
$
514
$
531
Foreign currency adjustment(1)
4
2
6
11
Total Revenues - adjusted for foreign currency
$
2,066
$
2,174
$
520
$
542
Transaction Days (in thousands)
32,693
34,278
8,605
8,817
Total RPD (in dollars)
$
63.20
$
63.45
$
60.45
$
61.47
(1)Based on December 31, 2023 foreign currency exchange rates for all periods presented.
Americas RAC
International RAC
Nine Months Ended September 30,
($ in millions, except as noted)
2024
2023
2024
2023
Revenues
$
5,729
$
5,917
$
1,280
$
1,270
Foreign currency adjustment(1)
8
4
28
27
Total Revenues - adjusted for foreign currency
$
5,737
$
5,921
$
1,308
$
1,297
Transaction Days (in thousands)
95,469
94,626
22,404
21,962
Total RPD (in dollars)
$
60.09
$
62.59
$
58.37
$
59.07
(1)Based on December 31, 2023 foreign currency exchange rates for all periods presented.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(e)Total RPU Per Month is calculated as Total Revenues - adjusted for foreign currency divided by the Average Rentable Vehicles in each period and then divided by the number of months in the period reported.
Americas RAC
International RAC
Three Months Ended September 30,
($ in millions, except as noted)
2024
2023
2024
2023
Total Revenues - adjusted for foreign currency
$
2,066
$
2,174
$
520
$
542
Average Rentable Vehicles (in whole units)
432,608
442,353
117,466
119,914
Total revenue per unit (in whole dollars)
$
4,776
$
4,915
$
4,429
$
4,520
Number of months in period (in whole units)
3
3
3
3
Total RPU Per Month (in whole dollars)
$
1,592
$
1,638
$
1,476
$
1,507
Americas RAC
International RAC
Nine Months Ended September 30,
($ in millions, except as noted)
2024
2023
2024
2023
Total Rental Revenues
$
5,737
$
5,921
$
1,308
$
1,297
Average Rentable Vehicles (in whole units)
434,714
422,595
106,593
103,861
Total revenue per unit (in whole dollars)
$
13,196
$
14,012
$
12,269
$
12,490
Number of months in period (in whole units)
9
9
9
9
Total RPU Per Month (in whole dollars)
$
1,466
$
1,557
$
1,363
$
1,388
(f)Depreciation Per Unit Per Month represents the amount of average depreciation expense and lease charges, per vehicle per month and is calculated as depreciation of revenue earning vehicles and lease charges, net, with all periods adjusted to eliminate the effect of fluctuations in foreign currency exchange rates, divided by the Average Vehicles in each period, which is determined using a simple average of the number of vehicles at the beginning and end of a period, and then dividing by the number of months in the period reported. Our management believes eliminating the effect of fluctuations in foreign currency exchange rates is useful in analyzing underlying trends. The calculation of Depreciation Per Unit Per Month is shown below:
Americas RAC
International RAC
Three Months Ended September 30,
($ in millions, except as noted)
2024
2023
2024
2023
Depreciation of revenue earning vehicles and lease charges, net(1)
$
822
$
414
$
115
$
87
Foreign currency adjustment(2)
1
1
2
1
Adjusted depreciation of revenue earning vehicles and lease charges
$
823
$
415
$
117
$
88
Average Vehicles (in whole units)
463,467
467,916
120,049
122,572
Adjusted depreciation of revenue earning vehicles and lease charges divided by Average Vehicles (in whole dollars)
$
1,777
$
886
$
971
$
720
Number of months in period (in whole units)
3
3
3
3
Depreciation Per Unit Per Month (in whole dollars)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Americas RAC
International RAC
Nine Months Ended September 30,
($ in millions, except as noted)
2024
2023
2024
2023
Depreciation of revenue earning vehicles and lease charges, net(1)
$
2,603
$
1,035
$
338
$
176
Foreign currency adjustment(2)
3
2
8
4
Adjusted depreciation of revenue earning vehicles and lease charges
$
2,606
$
1,037
$
346
$
180
Average Vehicles (in whole units)
460,638
446,101
108,772
105,997
Adjusted depreciation of revenue earning vehicles and lease charges divided by Average Vehicles (in whole dollars)
$
5,658
$
2,325
$
3,176
$
1,696
Number of months in period (in whole units)
9
9
9
9
Depreciation Per Unit Per Month (in whole dollars)
$
629
$
258
$
353
$
188
(1)Reflects one month of depreciation at post-impairment rates for the three and nine months ended September 30, 2024. See Note 3,"Long-Lived Assets Impairment," in Part I, Item 1 of this Quarterly Report.
(2)Based on December 31, 2023 foreign currency exchange rates for all periods presented.
LIQUIDITY AND CAPITAL RESOURCES
Our U.S. and international operations are funded by cash provided by operating activities and by extensive financing arrangements in the U.S. and internationally.
Cash and Cash Equivalents
As of September 30, 2024, we had $501 million of cash and cash equivalents and $404 million of restricted cash and cash equivalents. As of September 30, 2024, $191 million of cash and cash equivalents and $121 million of restricted cash and cash equivalents were held by our subsidiaries outside of the U.S. We continue to assert non-permanent reinvestment of foreign earnings that give rise to excess cash, provided such cash can be remitted in a tax efficient manner.
We believe that cash and cash equivalents generated by our operations and cash received on the disposal of vehicles, together with amounts available under various liquidity facilities and refinancing options available to us in the capital markets, will be sufficient to fund our operating activities and obligations for the next twelve months and for the foreseeable future thereafter.
Cash Flows – Hertz
As of September 30, 2024 and December 31, 2023, Hertz had cash and cash equivalents of $501 million and $764 million, respectively, and restricted cash and cash equivalents of $404 million and $442 million, respectively. The following table summarizes the net change in cash and cash equivalents and restricted cash and cash equivalents for the periods shown:
Nine Months Ended September 30,
(In millions)
2024
2023
$ Change
Cash provided by (used in):
Operating activities
$
1,813
$
1,907
$
(94)
Investing activities
(3,267)
(4,108)
841
Financing activities
1,153
1,836
(683)
Effect of exchange rate changes
—
3
(3)
Net change in cash and cash equivalents and restricted cash and cash equivalents
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
During the nine months ended September 30, 2024, cash flows from operating activities decreased $94 million period over period due primarily to a $876 million change in net income, as adjusted for non-cash and non-operating items, inclusive of a $1.0 billion Long-Lived Assets impairment recognized in the third quarter of 2024, partially offset by a $782 million change in working capital accounts. Cash flows from working capital accounts increased due primarily to an increase to an existing bankruptcy-related litigation reserve recorded in the third quarter of 2024, a decrease in non-vehicle receivables due to timing, lower value added tax receivables, an increase in self-insurance liabilities as a result of adverse experience and case development and non-recurring capital outlays for certain prepaids in 2023.
Our primary investing activities relate to the acquisition and disposal of revenue earning vehicles. During the nine months ended September 30, 2024, there was an $841 million decrease in the cash used in investing activities period over period due primarily to a $932 million decrease in revenue earning vehicle expenditures, net, partially offset by $168 million of net proceeds received in March 2023 from the sale of certain non-vehicle capital assets as disclosed in Note 4, "Divestitures," in Part I, Item 1 of this Quarterly Report. The decrease in revenue earning vehicle expenditures, net primarily resulted from decreased vehicle acquisitions resulting in part from our fleet-related initiatives and higher fleet levels entering 2024 and increased vehicle dispositions.
Net financing cash inflows were $1.2 billion in the nine months ended September 30, 2024 compared to $1.8 billion in the 2023 period. The $683 million decrease in cash inflows is due primarily to a decrease of $2.0 billion in net proceeds from vehicle debt as a result of less issuances in the nine months ended September 30, 2024 versus the comparable period in 2023. Cash flows from financing activities were also impacted by a $1.1 billion increase in net proceeds from non-vehicle debt resulting from issuances of the First Lien Senior Notes and the Exchangeable Notes in June 2024, along with outstanding draws on the First Lien RCF in the nine months ended September 30, 2024. A reduction in dividends paid to Hertz Holdings of $265 million in the nine months ended September 30, 2024, which were primarily used for share repurchases in the comparable period in 2023, further increased cash inflows during 2024.
Cash Flows – Hertz Global
As of September 30, 2024 and December 31, 2023, Hertz Global had cash and cash equivalents of $501 million and $764 million, respectively, and restricted cash and cash equivalents of $404 million and $442 million, respectively. The following table summarizes the net change in cash and cash equivalents and restricted cash and cash equivalents for Hertz Global for the periods shown:
Nine Months Ended September 30,
(In millions)
2024
2023
$ Change
Cash provided by (used in):
Operating activities
$
1,810
$
1,910
$
(100)
Investing activities
(3,267)
(4,108)
841
Financing activities
1,156
1,833
(677)
Effect of exchange rate changes
—
3
(3)
Net change in cash and cash equivalents and restricted cash and cash equivalents
$
(301)
$
(362)
$
61
Fluctuations in operating, investing and financing cash flows from period to period were due to the same factors as those disclosed for Hertz above, with the exception of any cash inflows or outflows related to the issuance or repurchase of our common stock and the exercise of Public Warrants. See Note 10, "Public Warrants, Equity and Earnings (Loss) Per Common Share – Hertz Global," in Part I, Item 1 of this Quarterly Report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Share Repurchase Programs for Common Stock
In June 2022, Hertz Global's independent Audit Committee recommended, and its Board approved, the 2022 Share Repurchase Program that authorized additional repurchases of up to an incremental $2.0 billion worth of shares of Hertz Global's outstanding common stock. The 2022 Share Repurchase Program, announced on June 15, 2022, has no initial time limit, does not obligate Hertz Global to acquire any particular amount of common stock and can be discontinued at any time. However, during the effective period of Amendment No. 8, as disclosed in Note 7, "Debt," in Part I, Item 1 of this Quarterly Report, the repurchase of shares is not permitted commencing April 16, 2024 through April 1, 2025. Since the inception of the 2022 Share Repurchase Program, a total of 66,684,169 shares of Hertz Global's common stock have been repurchased in open-market transactions for an aggregate purchase price of $1.1 billion, excluding applicable excise tax. There were no share repurchases during the nine months ended September 30, 2024.
Common shares repurchased are included in treasury stock in the accompanying Hertz Global unaudited condensed consolidated balance sheet as of September 30, 2024 and December 31, 2023 in Part I, Item I of this Quarterly Report.
Subsequent to the expiration of Amendment No. 8, any future share repurchases will be made at the discretion of Hertz Global's management through a variety of methods, such as open-market transactions (including pre-set trading plans pursuant to Rule 10b5-1 of the Exchange Act), privately negotiated transactions, accelerated share repurchases and other transactions in accordance with applicable securities laws. There can be no assurance as to the timing or number of shares of any repurchases.
Debt Financing
Refer to Note 7, "Debt," in Part I, Item 1 of this Quarterly Report for information on our outstanding debt obligations and our borrowing capacity and availability under our revolving credit facilities as of September 30, 2024.
Cash paid for interest on vehicle debt during the nine months ended September 30, 2024 and 2023 was $385 million and $341 million, respectively. The $44 million increase in cash paid for vehicle debt interest is due primarily to higher interest rates and higher debt levels. Cash paid for interest on non-vehicle debt during the nine months ended September 30, 2024 and 2023 was $222 million and $170 million, respectively. The $52 million increase in cash paid for non-vehicle debt interest is due primarily to higher debt levels and higher outstanding borrowings on the First Lien RCF.
Our available corporate liquidity, which excludes unused commitments under our vehicle debt, was as follows:
(In millions)
September 30, 2024
December 31, 2023
Cash and cash equivalents
$
501
$
764
Availability under the First Lien RCF
1,147
1,266
Corporate liquidity
$
1,648
$
2,030
Non-Vehicle Debt
First Lien Credit Agreement
In April 2024, Amendment No. 8 became effective and requires a First Lien Ratio of less than or equal to 5.0x in the second and third quarters of 2024 and 4.75x in the fourth quarter of 2024 and the first quarter of 2025. Amendment No. 8 also contains a minimum liquidity covenant of $400 million for each month ending in the second and third quarters of 2024 and $500 million for each month ending in the fourth quarter of 2024 and the first quarter of 2025. Liquidity as defined in the First Lien Credit Agreement may be materially different than corporate liquidity presented above. Amendment No. 8 also adds certain limitations on Restricted Payments and Permitted Investments (each as
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
defined in the First Lien Credit Agreement). Under the terms of Amendment No. 8, the increased First Lien Ratio, minimum liquidity covenant, and limitations on Restricted Payments and Permitted Investments will sunset on the first day of the second quarter of 2025.
In July 2024, consistent with obligations arising from the issuance of the First Lien Senior Notes and the Exchangeable Notes, as disclosed below, Hertz Holdings entered into a parent guarantee agreement with the administrative agent for the First Lien Credit Agreement. Prior to the issuance of each of the First Lien Senior Notes and the Exchangeable Notes, Hertz Holdings did not guarantee the obligations under the First Lien Credit Agreement.
First Lien Senior Notes
In June 2024, Hertz issued $750 million in aggregate principal amount of the First Lien Senior Notes, which are guaranteed by Hertz Holdings, Rental Car Intermediate Holdings, LLC and each of Hertz’s direct and indirect U.S. subsidiaries that are guarantors under the First Lien Credit Agreement. The First Lien Senior Notes bear interest at a rate of 12.625% per annum payable semi-annually in arrears on January 15 and July 15 of each year, beginning in January 2025. The First Lien Senior Notes mature July 2029. Proceeds from the issuance of the First Lien Senior Notes were used to pay down a portion of the outstanding borrowings of the First Lien RCF.
Exchangeable Notes
In June 2024, Hertz issued $250 million in aggregate principal amount of the Exchangeable Notes, which are guaranteed by Hertz Holdings, Rental Car Intermediate Holdings, LLC and each of Hertz’s direct and indirect U.S. subsidiaries that are guarantors under the First Lien Credit Agreement. The Exchangeable Notes bear PIK interest payable semi-annually in arrears on July 15 and January 15 of each year, beginning in January 2025. The Exchangeable Notes mature on the Maturity Date, unless repurchased, redeemed or exchanged in accordance with their terms prior to the Maturity Date.
Prior to April 15, 2029, the Exchangeable Notes will be exchangeable only upon satisfaction of certain conditions and during certain periods. Thereafter, the Exchangeable Notes will be exchangeable at any time until the close of business on the second scheduled trading day immediately preceding the Maturity Date. The Exchangeable Notes will be exchangeable by holders into shares of Hertz Global common stock, cash or a combination of common stock and cash, at our election, at an initial exchange rate of 150.9388 shares per $1,000 principal amount of Exchangeable Notes, corresponding to an initial exchange price of $6.6252 per share, subject to adjustment upon the occurrence of certain events. Proceeds from the issuance of the Exchangeable Notes were used to pay down a portion of the outstanding borrowings of the First Lien RCF.
We may redeem the Exchangeable Notes on or after July 20, 2027 and on or prior to the 31st scheduled trading day immediately preceding the Maturity Date, if the last reported sale price per share of Hertz Global common stock has been at least 250% of the exchange price for the Exchangeable Notes for certain specified periods. We may redeem all (but not part) of the Exchangeable Notes at a cash redemption price equal to the initial principal amount of the Exchangeable Notes to be redeemed plus PIK interest on such Exchangeable Notes for each interest payment date occurring on or prior to the redemption date plus accrued and unpaid PIK interest on such Exchangeable Notes to, but not including, the redemption date.
At the time of issuance, certain investors affiliated with CK Amarillo, which is an affiliate of Hertz Holdings, purchased approximately $44 million of the Exchangeable Notes as further disclosed in Note 15, "Related Party Transactions," in Part I, Item 1 of this Quarterly Report.
Upon issuance, we bifurcated the Exchange Feature from the Exchangeable Notes for accounting purposes utilizing applicable guidance. As a result, we recognized a debt discount of $68 million within non-vehicle debt, representing the initial fair value of the Exchange Feature. As of September 30, 2024, the fair value of the Exchange Feature was $54 million. Refer to Note 13, "Fair Value Measurements," in Part I, Item 1 of this Quarterly Report for further details.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The net carrying amount of the Exchangeable Notes consists of the following:
(In millions)
September 30, 2024
Principal
$
250
Unamortized debt discount and debt issuance costs(1)
(61)
Net carrying amount
$
189
(1) The debt discount is amortized to non-vehicle interest expense over the term of the Exchangeable Notes using the effective interest method.
Interest expense recognized for the Exchangeable Notes consists of the following:
Three Months Ended September 30,
Nine Months Ended September 30,
(In millions)
2024
2023
2024
2023
Contractual interest expense
$
5
$
—
$
5
$
—
Amortization of debt discount and debt issuance costs
2
—
2
—
(Gain) loss on fair value of Exchange Feature(1)
(14)
—
(14)
—
Total
$
(7)
$
—
$
(7)
$
—
(1) Refer also to Note 13, "Fair Value Measurements," in Part I, Item 1 of this Quarterly Report.
Letters of Credit
As of September 30, 2024, there were outstanding standby letters of credit totaling $864 million comprised primarily of $603 million issued under the First Lien RCF and $245 million issued under the Term C Loan. As of September 30, 2024, no capacity remained to issue additional letters of credit under the Term C Loan. Such letters of credit have been issued primarily to provide credit enhancement for our asset-backed securitization facilities and to support our insurance programs, as well as to support our vehicle rental concessions and leaseholds. As of September 30, 2024, none of the issued letters of credit have been drawn upon.
Vehicle Debt
Americas RAC
HVF III U.S. Vehicle Variable Funding Notes
In April 2024, HVF III amended the HVF III Series 2021-A Notes to extend the maturity of the Class A Notes to April 2026.
In May 2024, HVF III amended the HVF III Series 2021-A Notes to reduce the Tesla concentration limit.
HVF III U.S. Vehicle Medium Term Notes
HVF III Series 2024-1 Notes and Series 2024-2 Notes: In July 2024, HVF III issued the Series 2024-1 Notes (Class A, Class B, Class C and Class D) and Series 2024-2 Notes (Class A, Class B, Class C and Class D) each in aggregate principal amounts of $375 million with maturity dates of January 2028 and January 2030, respectively.
Hertz Canadian Securitization
In April 2024, the Hertz Canadian Securitization was amended to increase the aggregate maximum borrowings from CAD$475 million to CAD$625 million until November 2024, reverting to CAD$475 million thereafter until the extended maturity date of April 2026.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
International RAC
European ABS
In April 2024, the European ABS was amended to increase the aggregate maximum borrowings from €1.2 billion to €1.3 billion. Additionally, the European ABS was amended to provide for aggregate maximum borrowings of €1.5 billion for a seasonal commitment period beginning in April 2024 through November 2024. Following expiration of the seasonal commitment period, the aggregate maximum borrowings will revert to €1.3 billion.
In June 2024, the European ABS was amended to (i) incorporate the Belgium fleet within the European ABS financing structure and (ii) make certain Amendments. The aggregate maximum borrowings available under the European ABS remain unchanged after giving effect to the Amendments.
Australian Securitization
In July 2024, HA Fleet Pty Limited, an indirect wholly owned subsidiary of Hertz, amended the Australian Securitization to extend the maturity date to June 2026.
New Zealand RCF
In September 2024, Hertz New Zealand Holdings, an indirect wholly owned subsidiary of Hertz, amended the New Zealand RCF to extend the maturity date to August 2026.
U.K. Financing Facility
In June 2024, the U.K. Financing Facility was amended to provide for a seasonal increase in aggregate maximum borrowings from £135 million to £155 million until October 2024.
In July 2024, the U.K. Financing Facility was amended to increase aggregate maximum borrowings from £135 million to £170 million, and together with the June 2024 amendment, providing for aggregate maximum borrowings of £190 million for the seasonal commitment period ending October 2024. Upon expiration of the seasonal commitment period, aggregate maximum borrowings will revert to £170 million. Also under the amendment, the maturity date of the U.K. Financing Facility was extended to May 2025.
Substantially all of our revenue earning vehicles and certain related assets are owned by special purpose entities or are encumbered in favor of the lenders under the various credit facilities, other secured financings and asset-backed securities programs. None of the value of such assets (including the assets owned by Hertz Vehicle Financing III LLC and various international subsidiaries that facilitate our international securitizations) will be available to satisfy the claims of unsecured creditors unless the secured creditors are paid in full.
Covenants
The First Lien Credit Agreement requires us to comply with the following financial covenant: the First Lien Ratio, which requires a ratio of less than or equal to 3.0x in the first and last quarters of the calendar year and 3.5x in the second and third quarters of the calendar year. Amendment No. 8 temporarily increases the First Lien Ratio and contains a minimum liquidity covenant for each fiscal quarter beginning in the second quarter of 2024 and will sunset on the first day of the second quarter of 2025, as discussed above. As of September 30, 2024, we were in compliance with the First Lien Ratio, as temporarily amended.
Additionally, our Corporate Indebtedness contain customary affirmative covenants including, among other things, the delivery of quarterly and annual financial statements and/or compliance certificates, and covenants related to conduct of business, maintenance of property and insurance, compliance with environmental laws and, where applicable, the granting of security interests for the benefit of the secured parties under the applicable agreements on after-acquired real property, fixtures and future subsidiaries.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The terms of our Corporate Indebtedness contain covenants limiting the ability of Hertz and its restricted subsidiaries to: incur or guarantee additional indebtedness; incur or guarantee secured indebtedness; pay dividends or distributions on, or redeem or repurchase, Hertz Global capital stock; make certain investments or other restricted payments; sell certain assets; transfer intellectual property to unrestricted subsidiaries; merge, consolidate or sell all or substantially all of its assets; and create restrictions on the ability of Hertz’s restricted subsidiaries to pay dividends or other amounts to Hertz. As per the terms of the Corporate Indebtedness, these covenants are subject to a number of important and significant limitations, qualifications and exceptions.
As of September 30, 2024, we were in compliance with all covenants under the terms of agreements governing the respective Corporate Indebtedness.
Capital Expenditures
Revenue Earning Vehicles Expenditures and Disposals
The table below sets forth our revenue earning vehicles expenditures and related disposal proceeds for the periods shown.
Cash inflow (cash outflow)
Revenue Earning Vehicles
(In millions)
Capital Expenditures
Disposal Proceeds
Net Capital Expenditures
2024
First Quarter
$
(1,904)
$
1,233
$
(671)
Second Quarter
(3,723)
1,669
(2,054)
Third Quarter
(2,231)
1,754
(477)
Total
$
(7,858)
$
4,656
$
(3,202)
2023
First Quarter
$
(2,824)
$
1,206
$
(1,618)
Second Quarter
(3,719)
1,560
(2,159)
Third Quarter
(1,769)
1,412
(357)
Total
$
(8,312)
$
4,178
$
(4,134)
The table below sets forth expenditures for revenue earning vehicles, net of disposal proceeds, by segment.
Cash inflow (cash outflow)
Nine Months Ended September 30,
($ in millions)
2024
2023
$ Change
% Change
Americas RAC
$
(2,693)
$
(3,237)
$
544
(17)
International RAC
(509)
(897)
388
(43)
Total
$
(3,202)
$
(4,134)
$
932
(23)
NM - Not meaningful
Revenue earning vehicle expenditures decreased $454 million, or 5%, in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily in our Americas RAC segment, resulting from decreased vehicle acquisitions resulting in part from our fleet-related initiatives and higher fleet levels entering 2024. Proceeds from disposal of revenue earning vehicles increased $478 million, or 11%, in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 resulting from increased vehicle disposals in 2024.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Non-Vehicle Capital Asset Expenditures and Disposals
The table below sets forth our non-vehicle capital asset expenditures and related disposal proceeds from non-vehicle capital assets disposed of or to be disposed of for the periods shown.
Cash inflow (cash outflow)
Non-Vehicle Capital Assets
(In millions)
Capital Expenditures
Disposal Proceeds
Net Capital Expenditures
2024
First Quarter
$
(33)
$
3
$
(30)
Second Quarter
(26)
4
(22)
Third Quarter
(22)
12
(10)
Total
$
(81)
$
19
$
(62)
2023
First Quarter
$
(45)
$
175
$
130
Second Quarter
(78)
1
(77)
Third Quarter
(28)
2
(26)
Total
$
(151)
$
178
$
27
The table below sets forth non-vehicle capital asset expenditures, net of disposal proceeds, by segment.
Cash inflow (cash outflow)
Nine Months Ended September 30,
($ in millions)
2024
2023
$ Change
% Change
Americas RAC
$
(46)
$
75
$
(121)
NM
International RAC
(11)
(12)
1
(8)
Corporate
(5)
(36)
31
(86)
Total
$
(62)
$
27
$
(89)
NM
NM - Not meaningful
In the nine months ended September 30, 2024, proceeds for non-vehicle capital assets decreased by $159 million compared to the nine months ended September 30, 2023, primarily in our Americas RAC segment, resulting from the sale of certain non-vehicle capital assets in March 2023 as disclosed in Note 4, "Divestitures," in Part I, Item 1 of this Quarterly Report. In the nine months ended September 30, 2024, expenditures for non-vehicle capital assets decreased by $70 million compared to the 2023 period, primarily in our Americas RAC segment and corporate operations, driven in part by a non-recurring capital outlay for certain non-vehicle prepaids in the 2023 period and reduced location refurbishment spend.
CONTRACTUAL AND OTHER OBLIGATIONS
As of September 30, 2024, there have been no material changes outside of the ordinary course of business with respect to our material cash requirements for our contractual and other obligations as set forth in the table included in Part II, Item 7 of our 2023 Form 10-K. Changes to our aggregate indebtedness, including related interest and terms of new issuances, are disclosed in Note 7, "Debt," in Part I, Item 1 of this Quarterly Report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENTS
Indemnification Obligations
There have been no significant changes to our indemnification obligations as compared to those disclosed in Note 14, "Contingencies and Off-Balance Sheet Commitments," in Part II, Item 8 of our 2023 Form 10-K.
We regularly evaluate the probability of having to incur costs associated with these indemnification obligations and have accrued for expected losses that are probable and estimable.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
There have been no significant changes due to recently issued accounting pronouncements as compared to those disclosed in Note 2, "Significant Accounting Policies," in Part II, Item 8 of our 2023 Form 10-K.
Certain statements contained or incorporated by reference in this Quarterly Report include "forward-looking statements." Forward-looking statements are identified by words such as "believe," "expect," "project," "potential," "anticipate," "intend," "plan," "estimate," "seek," "will," "may," "would," "should," "could," "forecasts," "guidance" or similar expressions, and include information concerning our liquidity, our results of operations, our business strategies, economic and industry conditions, and other information. These forward-looking statements are based on certain assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors. We believe these judgments are reasonable, but you should understand that these forward-looking statements are not guarantees of future performance or results, and our actual results could differ materially from those expressed in the forward-looking statements due to a variety of important factors, both positive and negative.
Important factors that could affect our actual results and cause them to differ materially from those expressed in forward-looking statements include, among other things, those that may be disclosed from time to time in subsequent reports filed with, or furnished to, the SEC, those described under Item 1A, "Risk Factors," in our 2023 Form 10-K and set forth in this Quarterly Report, and the following, which also summarizes the principal risks of our business:
•mix of program and non-program vehicles in our fleet, which can lead to increased exposure to residual value risk upon disposition;
•the potential for residual values associated with non-program vehicles in our fleet to decline, including suddenly or unexpectedly, or fail to follow historical seasonal patterns;
•our ability to purchase adequate supplies of competitively priced vehicles at a reasonable cost in order to efficiently service rental demand, including upon any disruptions in the global supply chain;
•our ability to effectively dispose of vehicles, at the times and through the channels, that maximize our returns;
•the timing of our fleet rotation, the performance of our long-lived assets and changes in market conditions, which could result in future impairments of our long-lived assets;
•the age of our fleet and its impact on vehicle carrying costs and customer service scores, as well as on our ability to sell vehicles at acceptable prices and times;
•whether a manufacturer of our program vehicle fulfills its repurchase obligations;
•the frequency or extent of manufacturer safety recalls;
•levels of travel demand, particularly business and leisure travel in the U.S. and in global markets;
•seasonality and other occurrences that disrupt rental activity during our peak periods, including in critical geographies;
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
•our ability to accurately estimate future levels of rental activity and adjust the number, location and mix of vehicles used in our rental operations accordingly;
•our ability to implement our business strategy or strategic transactions, including our ability to implement plans to support an electric vehicle fleet and to play a central role in the modern mobility ecosystem;
•our ability to achieve cost savings and normalized depreciation levels, as well as revenue enhancements from our profitability initiatives and other operational programs;
•our ability to adequately respond to changes in technology impacting the mobility industry;
•significant changes in the competitive environment and the effect of competition in our markets on rental volume and pricing;
•our reliance on third-party distribution channels and related prices, commission structures and transaction volumes;
•our ability to offer services for a favorable customer experience, and to retain and develop customer loyalty and market share;
•our ability to maintain our network of leases and vehicle rental concessions at airports and other key locations in the U.S. and internationally;
•our ability to maintain favorable brand recognition and a coordinated branding and portfolio strategy;
•our ability to attract and retain effective frontline employees, senior management and other key employees;
•our ability to effectively manage our union relations and labor agreement negotiations;
•our ability to manage and respond to cybersecurity threats and cyber attacks on our information technology systems or those of our third-party providers;
•our ability, and that of our key third-party partners, to prevent the misuse or theft of information we possess, including as a result of cyber attacks and other security threats;
•our ability to maintain, upgrade and consolidate our information technology systems;
•our ability to comply with current and future laws and regulations in the U.S. and internationally regarding data protection, data security and privacy risks;
•risks associated with operating in many different countries, including the risk of a violation or alleged violation of applicable anti-corruption or anti-bribery laws, and our ability to repatriate cash from non-U.S. affiliates without adverse tax consequences;
•risks relating to tax laws, including those that affect our ability to recapture accelerated tax depreciation and expensing, as well as any adverse determinations or rulings by tax authorities;
•our ability to utilize our net operating loss carryforwards;
•our exposure to uninsured liabilities relating to personal injury, death and property damage, or otherwise, including material litigation;
•the potential for adverse changes in laws, regulations, policies or other activities of governments, agencies and similar organizations, including those related to environmental matters, optional insurance products or policies, franchising and licensing matters, the ability to pass-through rental car related expenses or taxes, among others, that affect our operations, our costs or applicable tax rates;
•our ability to recover our goodwill and indefinite-lived intangible assets when performing impairment analysis;
•the potential for changes in management's best estimates and assessments;
•our ability to maintain an effective compliance program;
•the availability of earnings and funds from our subsidiaries;
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
•our ability to comply, and the cost and burden of complying, with environmental, social and governance, or ESG, regulations or expectations of stakeholders, and otherwise achieve our corporate responsibility goals;
•the availability of additional, or continued sources of, financing at acceptable rates for our revenue earning vehicles and to refinance our existing indebtedness, and our ability to comply with the covenants in the agreements governing our indebtedness;
•the extent to which our consolidated assets secure our outstanding indebtedness;
•volatility in our share price, our ownership structure and certain provisions of our charter documents, which could negatively affect the market price of our common stock;
•our ability to implement an effective business continuity plan to protect the business in exigent circumstances;
•our ability to effectively maintain effective internal control over financial reporting; and
•our ability to execute strategic transactions.
You should not place undue reliance on forward-looking statements. All forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing cautionary statements. All such statements speak only as of the date of this Quarterly Report and, except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to a variety of market risks, including the effects of changes in interest rates (including credit spreads), foreign currency exchange rates and fluctuations in fuel prices. We manage our exposure to these market risks through our regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. Derivative financial instruments are viewed as risk management tools and have not been used for speculative or trading purposes. In addition, derivative financial instruments are entered into with a diversified group of major financial institutions in order to manage our exposure to counterparty nonperformance on such instruments.
There have been no material changes to the information reported under Part II, Item 7A of our 2023 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
HERTZ GLOBAL
Evaluation of Disclosure Controls and Procedures
Our senior management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined under Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2024, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
HERTZ
Evaluation of Disclosure Controls and Procedures
Our senior management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined under Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2024, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
For a description of certain pending legal proceedings see Note 14, "Contingencies and Off-Balance Sheet Commitments," in Part I, Item 1 of this Quarterly Report.
ITEM 1A. RISK FACTORS
Part I, Item 1A of our 2023 Form 10-K for the year ended December 31, 2023 includes certain risk factors that could materially affect our business, financial condition or future results. There have been no material changes to those risk factors.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 5. OTHER INFORMATION
During the quarter ended September 30, 2024, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) entered into any (i) contract or written plan for the purchase or sale of securities of Hertz Global intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or (ii) non-Rule 10b5-1 trading arrangement.
ITEM 6. EXHIBITS
(a)Exhibits:
The attached list of exhibits in the "Exhibit Index" immediately preceding the signature page to this Quarterly Report is filed as part of this Quarterly Report and is incorporated herein by reference in response to this item.
InIine XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
Date:
November 12, 2024
HERTZ GLOBAL HOLDINGS, INC. THE HERTZ CORPORATION (Registrants)
By:
/s/ SCOTT M. HARALSON
Scott M. Haralson
Executive Vice President and Chief Financial Officer (Principal Financial Officer and Authorized Signatory)
