10-Q: Hertz Narrows Losses Amid Fleet Optimization, Revenue Dip

Hertz Global Holdings reported significantly reduced net losses and improved Adjusted Corporate EBITDA for Q2 and H1 2025, driven by lower vehicle depreciation, despite a decline in overall revenues and increased non-vehicle interest expense.

Summary

• Hertz Global Holdings reported a net loss of $294 million for the three months ended June 30, 2025, a substantial improvement from a $865 million loss in the same period of 2024.
• For the six months ended June 30, 2025, the net loss was $737 million, compared to a $1,051 million loss in the prior year period.
• Adjusted Corporate EBITDA significantly improved to $1 million for Q2 2025, up from a negative $460 million in Q2 2024, and to negative $324 million for H1 2025, from negative $1,027 million in H1 2024.
• Total revenues decreased by 7% to $2,185 million in Q2 2025 and by 10% to $3,998 million in H1 2025, primarily due to lower pricing and volume in the Americas RAC segment.
• Depreciation of revenue earning vehicles and lease charges, net, decreased by 60% to $415 million in Q2 2025 and by 53% to $950 million in H1 2025, attributed to fleet refresh, stronger residual values, and optimized disposition channels.
• Non-vehicle interest expense, net, increased significantly to $232 million in Q2 2025 (from $88 million in Q2 2024) and to $359 million in H1 2025 (from $163 million in H1 2024), mainly due to unrealized losses on Exchange Features, higher debt, and increased interest rates.
• A pre-tax gain of $89 million was recognized in Q2 2025 from the sale and leaseback of certain non-vehicle capital assets.
• Cash and cash equivalents stood at $503 million as of June 30, 2025, down from $592 million at December 31, 2024.
• Total debt increased to $17,636 million as of June 30, 2025, from $16,335 million at December 31, 2024.
• The company accrued approximately $330 million for make-whole and post-petition interest litigation as of June 30, 2025, comprising $260 million for underlying claims and $70 million in pre-judgment interest.
• Hertz Global Holdings has an At-the-Market (ATM) Equity Offering Program for up to $250 million in common stock, with no shares sold as of June 30, 2025.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While the company demonstrated significant improvements in reducing net losses and achieving near-breakeven Adjusted EBITDA, driven by effective fleet management and reduced depreciation, it still faces declining revenues, increased non-vehicle interest expenses, and substantial ongoing legal liabilities. The potential for future capital raises also adds a layer of uncertainty.

Positives

• Net loss significantly narrowed for both the three and six months ended June 30, 2025, indicating improved financial performance compared to the prior year.
• Adjusted Corporate EBITDA showed a substantial improvement, nearing breakeven at $1 million in Q2 2025, reflecting better operational efficiency.
• Depreciation of revenue earning vehicles and lease charges, net, decreased dramatically by 60% in Q2 2025 and 53% in H1 2025, driven by fleet refresh, strengthening residual values, and optimized vehicle disposition.
• Vehicle Utilization improved in both Americas RAC (83% in Q2 2025 vs. 81% in Q2 2024) and International RAC (81% in Q2 2025 vs. 77% in Q2 2024), indicating more efficient use of the fleet.
• International RAC segment showed revenue growth (up 5% in Q2 2025) and increased Transaction Days (up 3% in Q2 2025), partly due to favorable foreign currency exchange rates.
• A gain of $89 million was recognized from the sale of non-vehicle capital assets, contributing positively to income.
• The company successfully amended its First Lien Revolving Credit Facility, extending $1.7 billion of commitments from June 2026 to March 2028, enhancing liquidity management.
• New HVF III Series 2025 Notes were issued, providing additional vehicle debt financing.

Negatives

• Total revenues decreased by 7% in Q2 2025 and 10% in H1 2025, primarily due to lower pricing and volume in the Americas RAC segment.
• Americas RAC segment experienced a 10% revenue decrease in Q2 2025 and a 12% decrease in H1 2025, driven by lower pricing and volume.
• Non-vehicle interest expense, net, significantly increased by $144 million in Q2 2025 and $196 million in H1 2025, due to unrealized losses on Exchange Features, higher debt levels, and higher average interest rates.
• The change in fair value of Public Warrants resulted in a $115 million loss in Q2 2025 and a $124 million loss in H1 2025, a negative swing from gains in the prior year.
• Cash flows from operating activities decreased by $321 million in H1 2025 compared to H1 2024.
• Net financing cash inflows decreased by $731 million in H1 2025 compared to H1 2024, primarily due to fewer non-vehicle debt issuances.
• The company is still operating at a net loss, despite significant improvements from the prior year.

Risks

• Ongoing litigation regarding make-whole and post-petition interest claims, with approximately $330 million accrued as of June 30, 2025, poses a potential material adverse effect on financial condition, results of operations, or cash flows if judgment is entered against the company.
• Uncertainty surrounding the ultimate outcome and timing of the make-whole and post-petition interest litigation, including the U.S. Supreme Court's review.
• Continued decline in pricing (Total RPD) and transaction days (volume) in the Americas RAC segment, indicating potential demand or competitive pressures.
• Exposure to fluctuations in interest rates and foreign currency exchange rates, which can impact profitability and debt costs.
• Risks associated with the mix of program and non-program vehicles and the potential for residual values to decline, impacting depreciation costs.
• Ability to purchase adequate supplies of competitively priced vehicles and effectively dispose of vehicles to maximize returns.
• Reliance on third-party distribution channels and potential impact of changes in commission structures.
• Ability to attract and retain effective front-line employees, senior management, and other key personnel.
• Cybersecurity threats and data breaches, as evidenced by recent data breach claims related to a vendor, could lead to significant costs and reputational damage.
• Impact of new tax laws, such as the One Big Beautiful Bill Act (OBBBA), including the elimination of EV tax credits after September 30, 2025, which the company is still assessing.
• Compliance with covenants in debt agreements, although currently in compliance, remains a continuous risk factor.

Future Outlook

The company is currently assessing the impact of the recently enacted One Big Beautiful Bill Act (OBBBA) on its financial statements, particularly concerning the extension of Tax Cuts and Jobs Act provisions, restoration of 100% bonus depreciation for qualified property, full write-off of R&D costs, changes to interest deductibility rules, and the elimination of EV tax credits for purchases after September 30, 2025. Management believes that cash and cash equivalents from operations, vehicle disposals, and available financing will be sufficient to fund operating activities and obligations for the next twelve months and the foreseeable future.

Management Comments

• "Welcome to the winning team at Hertz where you'll help our company advance the way the world moves. Hertz empowers you to accelerate your career with fast-paced challenges and the opportunity to make a direct impact on the business." Gil West, Chief Executive Officer (from Chris Berg's offer letter)
• "Our strategy is focused on excellence in execution of the basics. We are committed to delivering unmatched customer experiences, optimizing fleet economics and building on our leadership in ride share." (Paraphrased from MD&A)
• "We expect that continuing to build on our brand strength, global network and global fleet management capabilities, while also combining those efforts with investments in technology, shared mobility and a digital-first customer experience, will allow us to deliver on the basics and remain a central player in the modern mobility ecosystem." (Paraphrased from MD&A)

Industry Context

The vehicle rental industry is seasonal, with heightened activity during spring and summer months. The company is balancing its mix of Electric Vehicles (EVs), non-program, and program vehicles based on market conditions, including residual values. The recent enactment of the One Big Beautiful Bill Act (OBBBA) in the U.S. introduces significant tax code changes, including the elimination of EV tax credits after September 30, 2025, which could impact the company's fleet strategy and profitability related to EVs. The industry continues to evolve with investments in technology and shared mobility.

Comparison to Industry Standards

• The significant reduction in depreciation per unit per month for both Americas RAC ($248 in Q2 2025 vs. $644 in Q2 2024) and International RAC ($261 in Q2 2025 vs. $384 in Q2 2024) suggests improved fleet cost management, which is a critical factor for profitability in the vehicle rental industry. This indicates a positive trend in managing a key operational expense compared to prior periods.
• Vehicle utilization rates of 83% for Americas RAC and 81% for International RAC in Q2 2025 are generally considered healthy for the car rental industry, indicating efficient deployment of the fleet. For comparison, industry leaders typically aim for utilization rates in the high 70s to low 80s, suggesting Hertz is performing competitively in this aspect.
• The decline in Total Revenue Per Transaction Day (pricing) across both segments (down 6% in Americas RAC and 2% in International RAC in Q2 2025) indicates a challenging pricing environment, potentially due to increased competition or softening demand. This contrasts with periods of strong pricing power seen by some competitors during post-pandemic travel surges.
• The company's strategy to balance EV, non-program, and program vehicles, and its efforts to optimize disposition channels, are in line with broader industry trends to adapt to changing vehicle markets and maximize residual values, a challenge faced by all major rental companies like Avis Budget Group and Enterprise Holdings.

Management Changes

Corporate Governance

Legal Proceedings

• **Make-Whole and Post-Petition Interest Claims (Wells Fargo Bank, N.A. v. The Hertz Corp., et al.)**: Accrued approximately $330 million as of June 30, 2025 ($260 million for underlying claims and $70 million in pre-judgment interest). The Third Circuit ruled that Hertz must pay make-whole premium and post-petition interest. The company has filed a petition for writ of certiorari with the U.S. Supreme Court, which has requested the Solicitor General's views.
• **Claims Related to Alleged False Arrests**: The company settled with 364 claimants for approximately $168 million in December 2022. Ongoing litigation with insurers regarding coverage for these claims, with Hertz appealing a Delaware Superior Court decision to the Delaware Supreme Court.
• **Share Repurchase Program Litigation (Angelo Cascia v. Hertz Global Holdings, Inc. et al.)**: A putative class and derivative lawsuit alleging breach of fiduciary duties by Board members and unjust enrichment related to share repurchase programs. A Special Litigation Committee (SLC) was formed, which has filed a report and an unopposed motion to terminate derivative claims.
• **Securities Class Action Complaint (Edward M. Doller v. Hertz Global Holdings, Inc. et al.)**: Alleges violations of securities laws concerning statements regarding EV demand. Seeks unspecified damages, and proceedings are currently stayed pending a motion to dismiss.
• **Data Breach Claims (Zain Jiwani v. Cleo Communications U.S., LLC and The Hertz Corporation)**: Multiple class action complaints filed alleging negligence, breached implied contracts, and unjust enrichment due to a data breach at a third-party vendor. The company does not believe the ultimate resolution will have a material adverse effect.

Stakeholder Impact

• **Shareholders**: Potential for dilution from the ATM Equity Offering Program. Impact from ongoing legal proceedings, particularly the make-whole claims, could affect shareholder value. Improved financial performance (reduced losses, better EBITDA) could be positive for investor confidence.
• **Employees**: Hiring of a new Chief Administrative Officer indicates continued investment in leadership. Workforce adjustments are implied by the seasonal nature of the business and efforts to maintain a flexible workforce.
• **Customers**: Lower pricing (Total RPD) in Americas RAC could benefit customers. Fleet refresh and optimization efforts aim to improve customer experience.
• **Creditors**: Debt amendments and new note issuances impact the company's debt structure and repayment obligations. Compliance with debt covenants is crucial for maintaining creditor relations.
• **Suppliers/Manufacturers**: Changes in fleet mix and disposition strategies impact vehicle purchasing and sales relationships with manufacturers and dealers. The elimination of EV tax credits could influence future vehicle acquisition decisions.

Next Steps

• Company is assessing the impact of the One Big Beautiful Bill Act (OBBBA) on its financial statements.
• Delaware Bankruptcy Court to determine the exact amount owed in the make-whole and post-petition interest litigation.
• U.S. Supreme Court to decide whether to grant the petition for a writ of certiorari regarding make-whole claims.
• Delaware Supreme Court to hear Hertz's appeal regarding false arrest insurer litigation.
• Florida Middle District Court to rule on the motion to dismiss in the Securities Class Action Complaint.
• Illinois Northern District, Western Division Court to issue a global scheduling order for data breach claims.

Key Dates

Recommendation

The company is demonstrating significant operational improvements, particularly in fleet management and reducing vehicle depreciation, which has led to a substantial narrowing of net losses and a near-breakeven Adjusted Corporate EBITDA. This indicates a positive trajectory in core business efficiency. However, revenue decline, especially in the key Americas market, and a notable increase in non-vehicle interest expense are headwinds. Furthermore, the ongoing legal proceedings, particularly the make-whole claims with a significant accrued liability and Supreme Court involvement, introduce considerable uncertainty and potential financial risk. The ATM equity offering program, while providing flexibility, also signals potential future dilution. Given the mixed financial signals – strong operational improvements offset by revenue challenges and material legal overhang – a 'hold' recommendation is appropriate. Investors should monitor the company's ability to sustain operational gains, reverse revenue trends, and effectively manage its legal exposures before considering a stronger position.

Keywords

Vehicle Rental, Car Rental, Fleet Management, SEC Filing, Quarterly Report, Financial Performance, Adjusted EBITDA, Depreciation, Debt Financing, Legal Proceedings, Risk Management, Corporate Governance, Hertz, HTZ, Americas RAC, International RAC, EV Disposal, Capital Raise