Hertz Global Holdings, Inc Q3 FY2024 Earnings Call

Welcome to Hertz Global Holdings Third Quarter 2024 Earnings Call. I would like to remind you that this morning's call is being recorded by the company. I would now like to turn the call over to our host, Johann Rawlinson, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us. By now, you should have our earnings press release and associated financial information. We've also provided slides to accompany our conference call, and these can be accessed through the Investor Relations section of our website. I would like to remind you that certain statements made on this call contain forward-looking information. Forward-looking statements are not a guarantee of performance and, by their nature, are subject to inherent risks and uncertainties. Actual results may differ materially. Any forward-looking information relayed on this call speaks only as of today's date, and the company undertakes no obligation to update that information to reflect changed circumstances. Additional information concerning these statements, including factors that could cause our actual results to differ, is contained in our earnings press release and in the Risk Factors and Forward-Looking Statements section in the filings we make with the Securities and Exchange Commission. Our filings are available on the SEC's website and the Investor Relations section of the Hertz website. Today, we'll use certain non-GAAP financial measures, which are reconciled with GAAP numbers in our earnings press release and earnings presentation available on our website. We believe that these non-GAAP measures provide additional useful information about our operations, allowing for better evaluation of our profitability and performance. Unless otherwise noted, our discussion today focuses on our global business. On the call this morning, we have Gil West, our Chief Executive Officer; Scott Haralson, our Chief Financial Officer; and Sandeep Dube, our Chief Commercial Officer. We are also joined by Darren Arrington, our Executive Vice President for Revenue Management. I'll now turn the call over to Gil.

Thanks, Johann. Good morning, everyone, and thank you for joining our third quarter earnings call. I want to begin by extending my deepest gratitude to our team. They've been hard at work behind the scenes here at Hertz. This summer, they were dedicated to helping our customers seamlessly reach their destinations, while at the same time, driving forward our strategic goals, balancing day-to-day operations during our peak with a focus on our vision. They have truly demonstrated the energy and resilience that define us. The unwavering commitment and resiliency of our people were also on full display during the hurricanes that impacted millions of people across the Southeast, including many of our customers and employees in Southwest Florida, which is home to our world headquarters. Throughout the storms, our primary focus was on the safety and security of our employees while being there for our customers and community. We immediately activated our employee relief fund to provide critical aid to impacted team members, helped customers safely evacuate by providing one-way rentals, and collaborated with law enforcement to set up a command center at our headquarters so they were ready to serve the community. Additionally, we worked with organizations like the American Red Cross to provide emergency services to those deeply impacted by the storms and provided in-kind vehicle rentals to our nonprofit partner Team Rubicon, to assist with post-hurricane cleanup and recovery. In a time of crisis, we demonstrated our commitment to being a responsible corporate citizen by pulling one of our core corporate values: putting people first. We will continue to support our employees and communities on the long road to recovering from those natural disasters. With that said, I'd like to first spend a moment contextualizing Hertz as I see it. This is a globally renowned brand built on a legacy of service, innovation, and loyalty that, in recent years, hasn't lived up to its full potential. The first step in a turnaround is recognizing that. The next step is addressing it. And that's what we've been hard at work doing since I joined the company. In the last quarter, we solidified a best-in-class senior management team and have continued to elevate the talent throughout the organization. We have developed a clear roadmap with actionable plans and established management operating systems, acutely focused on data-driven goals that will allow us to control what we can control and return this company to a position of strength and operational excellence that will generate sustainable, long-term value for both our customers and shareholders. Our back-to-basic strategy is built on three pillars: our fleet, our revenue, and our cost management, leveraging key enablers around our people, technology, and process. Our operational transformation is on track for completion by the end of next year, and we are excited to share our progress with you. I'll start by covering the progress we made regarding our fleet, and Sandeep will cover progress around revenue and customer service. Scott will then cover our Q3 results and provide an update on our direct operating cost and SG&A. He'll also give an update on our capital position.

Thanks, Gil, and good morning, everyone. In my first quarter with our newly formed commercial team, we defined our go-forward focus around three pillars that power our revenue engine. First, we are committed to delivering an exceptional customer experience, which will drive greater demand and loyalty for our brands. Second, we aim to improve our ability to select, convert, and monetize the demand that we get today, resulting in a strong overall RPD mix. And third, we intend to drive better utilization of our primary asset, our fleet, by driving same days with a smaller fleet. Our organization is doubling down on a customer-first approach, working collaboratively to drive continuous improvement in customer experience. In an ever-changing macro environment, whether faced with pricing shifts or supply-demand fluctuations, customer loyalty serves as the greatest buffer against all of that. Consistently delivering exceptional service creates loyal customers, driving durable demand into the future revenue funnel supported by a strong family of brands and our loyalty programs. To achieve our long-term goals, we are implementing a rapid test-and-learn approach across the commercial team that delivers an undercurrent of ongoing performance improvement. We have improved the scale and speed of testing across revenue-driving initiatives, further enhanced by a consolidated commercial team driving cross-commercial strategy and decision-making. Since the pandemic, Hertz has endeavored to keep vehicle supply within the demand curve with a focus on generating premium rates to maximize RPU. This continued focus on profitable demand has allowed us to achieve sequential quarterly improvement in our year-over-year metrics in Q3 for both RPU and RPD. In addition, our focus is on improving operational utilization, not just by removing waste from our out-of-service fleet but also through levers that aren't connected to pricing, such as better operational execution between fleet and commercial in managing a fleet below the demand curve and improved execution between commercial and operations in managing utilization at non-airport locations. We are elevating the sophistication and level of detail at which we manage our commercial business. To summarize, as a commercial team, we are operating with discipline, aiming to drive up consumer demand for our brands while keeping vehicle supply well within our demand curve and maximizing revenue per unit. We have just started the process of aligning our initiatives and processes to deliver results across our three commercial pillars. This journey will be a focused commercial transformation that, over time, is intended to be a flywheel that delivers incremental revenue growth. So far, I have been pleased with the velocity of progress as a freshly formed commercial team, but this is just the start. The full impact of our efforts will manifest over time, but I see signs of early progress.

Thanks, Sandeep, and good morning, everyone. Let me begin with a huge thank you to the Hertz team for the resilience and strength demonstrated during the devastating storms. Our team is the lifeblood of this company, and they once again showed why they are the best in the business. So a big thank you to the team. Now let me cover the financial results for the quarter. Revenue for the third quarter was $2.6 billion, and our adjusted corporate EBITDA was a loss of $157 million. In terms of revenue, transaction days were down 4% and RPD was relatively flat versus Q3 of last year. Lower market rates were supported by a deliberate strategy to drive a better RPD mix. Our results for the quarter were also impacted by a noncash asset impairment charge of just over $1 billion. The evaluation and accounting for the impairment was cumbersome and complicated and drove our earnings release date to push later than expected. The size of the impairment charge was largely due to the decline in fleet residual values over the last year or so. The timing of the impairment was driven by the cash flow generation of the business over the remaining hold period of the vehicles, which was primarily impacted by our recent accelerated fleet rotation initiative. The process of evaluating an impairment includes comparing the carrying value of the collection of long-lived assets as a whole to the undiscounted future cash flow projections during the remaining hold period of the primary asset. The increase in value of some of our non-fleet assets offset decreases in values of other assets. The result is that the impairment charge doesn't completely correct the book value to market value dislocation of our fleet. Therefore, we will still have some excess depreciation to push through the P&L in future quarters; it will just be a much smaller number than before the impairment. Again, this is a noncash charge that doesn't affect any other financing covenants or cash comparisons for our business. In Q3, the impairment was recognized as of August 31st, so our Q3 results include two months of non-impairment depreciation amounts plus the impairment charge and then one month under the post-impairment depreciation rate. DPU for Q3 was $537 per unit per month, and we expect Q4 DPU to be in the $350 to $375 range. This also doesn't affect the timing of when we expect to get to our targeted run rate DPU levels, which is still at the end of 2025. And speaking of run rate DPU, we previously hinted at a target run rate of $325, but we have since contracted a significant portion of our model year 2025 purchases, and we now expect our run rate depreciation to be less than $300 per unit per month, providing an even stronger platform for the transformation. In addition to lower DPU in the future, we believe we can operate the business with fewer vehicles overall. As Gil pointed out, driving improved asset utilization in an asset-intensive business like ours is a critical unlock for cost efficiency that is large but probably underappreciated. In fact, reducing our fleet by 1% while producing the same number of transaction days could reduce our expenses by more than $30 million per year and reduce our cash outlay by more than $20 million and reduce our debt by more than $100 million. There are not many actions that we can take in our business that produce that kind of benefit. Regarding non-lead expenses, we also continue to see progress in driving long-term structural cost efficiencies in maintenance, collision, supply chain, facilities, and personnel. We still have headwinds in areas like insurance and revenue-related expenses, but the scale is starting to tip in our favor. We still have a lot of wood to chop, and this is a journey, not a one-time cost reduction exercise. This is driving long-term sustainable efficiencies in the business. Plus, we have a number of opportunities where the results won't largely be visible until the end of the future, including operating expense benefits of a newer fleet. We do, however, need to continue to efficiently produce units or our case transaction days to take full advantage of our structural cost improvements over the next year or so. But we can already see core cost improvements in our Q3 results. Quarter-over-quarter, DOE is down almost 2%. The business is aggressively addressing the inefficiencies and the results are starting to show. So now let me talk about liquidity and cash flow. I'll be brief in commenting on the make-whole and post-petition interest claims arising from our bankruptcy as that litigation is still ongoing. There are published opinions and briefs available, as well as a detailed disclosure in the 10-Q we filed this morning. We intend to appeal the Third Circuit's decision, which overturned the bankruptcy court's decision that was in our favor to the U.S. Supreme Court. In the meantime, we accrued an additional approximately $290 million in the third quarter. We ended the quarter with liquidity of over $1.6 billion, comprised of over $500 million of unrestricted cash and over $1.1 billion of available capacity under the revolving credit facility. We continue to forecast that our low point of liquidity will be around the middle of 2025, given seasonal cash needs and the progress of our fleet rotation. While I feel comfortable with our liquidity and do expect these levels to be sufficient, I would still like to have more cushion for unexpected volatility in the market. So we will probably look to be active in the capital markets in the coming months. We also have other levers to generate cash inflows or moderate the cash outflows that give us flexibility. But I think it's prudent to take advantage of favorable capital markets when the opportunity is available. Regarding our ABS, we have seen an equity cushion start to build in the facility. As we flagged on our prior call, we made a $100 million incremental lease payment into the structure in August. If you recall, residual values in June had decreased about 5%. And though the July residuals came in positive, they weren't enough to offset the impact. Since then, residuals have stabilized. And as we bring in new vehicles, we are beginning to build some cushion. With more stable residuals and new vehicles at better purchase prices, we currently don't expect the need to make additional unscheduled payments into the facility. Regarding the U.S. vehicle debt maturing by the end of the year, our term ABS notes amortized in the six months prior to the final maturity dates. As of the end of Q3, $1 billion of the $2 billion of maturities had already been retired. In addition, at quarter-end, we maintained available commitments under our VFN of $2.2 billion. Sufficient capacity to refinance the remaining $1 billion of maturity notes. On the corporate side, we do not have any meaningful maturities until mid-2026. So in summary, this quarter produced an improving year-over-year variant in almost every important metric: EBITDA, RPD, DOE spread, DOE per day, and others. We are clearly not done, but improvements are visible, and we are optimistic about where we're heading. We are still targeting our run rate metrics of DOE per day in the low 30s, RPU above 1,500, and now a new run rate DPU below $300. In regard to guidance, outside of our expectations around Q4 DPU in the $350 to $375 range, we are not yet in a position to provide more formal guidance, but are working towards making this a regular feature in 2025.

Thanks, Scott. In closing, we're clear-eyed about the challenges ahead, but we're hitting them head on, and our employees and management teams are energized. I've seen this before. We have more opportunities in front of us than challenges. Vehicle market conditions have normalized, which benefits our fleet rotation. The global travel macros remain strong. Both TSA and arc ticketing data reflect positive growth from here, and the readouts from the airlines are positive. As I look at the broader picture around our transformation, I like the path we're on and the progress we've made. This is not just about improving our financials; it's about fundamentally reimagining how we operate. We're laying the groundwork now for sustainable, long-term success. Our focus will remain on building momentum with a clear vision and dedicated team. We're excited about what's ahead and look forward to updating you on our progress in the coming quarters. With that said, let's open the call up for questions.

Our first question today comes from Chris Woronka with Deutsche Bank.

Gil and Scott, you mentioned an expectation that DPU can get down under that $300 range in the future. Can you maybe expand upon that a little bit and give us a little bit of color as to what's going to go into that and then I guess, your level of confidence.

Yes, thanks, Chris. I'll start, and Scott can add if he wishes. We definitely see a path to achieving a sustainable DPU below $300, which is in line with historic levels. Our fleets are essential to our economic performance, and given that market conditions have normalized and the disruptions from COVID have diminished, we're making good progress. Our fleet purchase for 2025 is moving forward as Scott mentioned, and the economics from our recent acquisitions suggest we can achieve a DPU below $300. Beyond the stabilization of market conditions, we've fundamentally transformed how we manage the fleet; our fleet management strategies have been revamped and are becoming a core competency for us. Firstly, we now have a comprehensive fleet management team in place that ensures we make smart purchases with targeted unit economics. We're careful in curating the right mix and focusing on reselling vehicles to maximize our returns. This includes a targeted approach to selling vehicles at the ideal point in the depreciation curve, which varies by make and model. Consequently, this strategy generally reduces our holding periods, enhances our economics, and mitigates our exposure to long-term residual value fluctuations. We also aim to expand our retail sales channels to maximize our sales gains and effectively operate as a used car factory. As we've discussed, we want to increase utilization and minimize nonproductive fleet assets, whether they are in sales channels or under maintenance, and a younger fleet will help with this. Additionally, we've partnered with Palantir, giving us access to proprietary tools that enhance our fleet management and planning capabilities. Our fleet strategy brings numerous advantages, including lower DPU, reduced maintenance expenses, more intensive asset usage, and growth in retail sales, all of which contribute to an improved customer experience. Therefore, we are optimistic about the path ahead.

Okay. As a follow-up, you talked a lot about kind of being able to do more with less in terms of the savings you might get from reducing your fleet by 1%, but still doing the same number of transactions. So increased utilization. And I know you've got other cost focuses as well. But I guess, this is a scalable business, right? So I mean, is it fair to say that your longer-term plan is to stay smaller and not kind of think about the benefits of scale and going back to, say, your 2019 fleet size? Just any thoughts on how to kind of drive cost-cutting with the fact that there is some scalability of operations here, right?

Yes. No, it's a fair point. Look, scale matters. We recognize that, but we also want to continue to operate the fleet inside the demand curve. We've been very disciplined with that and finding, I think we've still got work to do to find that right balance between pricing and days, and the team is wholly focused on that. But there is a demand generation piece on top of this. I'll turn it over to Sandeep; he can talk more about that. But we're also very focused on creating demand and then that enables our ability to continue to scale.

Yes, this is Sandeep here. I think there is a heavy focus on driving demand in the right segments. When you talk about premium RPD, what are the factors that drive that incremental demand? And how do we generate that with customer experience, of course, being a key focus there? But there are other strategies in play there as well. While we are in this transformation stage, we are heavily focused on RPU. Part of that equation is actually being comfortable letting go of some of that lower-margin brand-agnostic demand that comes our way, which we are pretty certain that in the future, from a scale perspective, we want to gain that, we can gain that back. But it's a heavy focus on customers who choose to do business with Hertz.

Can you guys maybe talk about some of the rate trends in October, November, what you're basically seeing there? And how do we think about it maybe even going into next year?

Yes, this is Sandeep. Let me address that. In general, when considering supply and demand in the industry for the fourth quarter and the end of the third quarter, rates are influenced by these factors. Overall, demand in the industry remains strong, whether we examine transaction days or forward-looking airline booking data; it continues to be consistently robust. On the supply side, there has been a slight increase at airports towards the end of the third quarter and into the fourth quarter, which has led to a minor decline in rates observed so far. However, I would say that supply is still balanced within the industry, and this balance is a range rather than a specific figure. In terms of pricing, when compared to 2019, rates are still up by over 20 percent. Overall, both demand and supply are generally in a balanced state, and we feel confident about the trends.

Okay. Great. And then maybe a question for Scott. Can you maybe just talk through some of the key considerations related to the impairment that was announced?

When it comes to an impairment, look, I mean, there's a scripted structured process and gap for monitoring, evaluating, and calculating if an impairment is triggered. So we've been monitoring to see if we triggered an impairment in prior quarters, and we did not. During our Q3 review, we found that we did trigger an impairment and began working through the complex and thorough accounting process to calculate it. As I mentioned in my prepared remarks, the timing of that impairment was driven by the cash flow generation of the business over the holding period of our primary fleet asset, which in turn was impacted by the accelerated fleet rotation initiative. The size of the impairment was largely driven by the gap between book values and the current market value of vehicles. I think that's fairly obvious to most people. And in fact, about 70% of our fleet; so this is not isolated to anything individual. The impairment charge doesn't fully align the book right to market value difference, as I mentioned in the prepared remarks as well. It will just be a smaller value. And again, I'll mention that it's a noncash expense. Our ABS facility already marks to market the value of the vehicles in the facility. So you could say that the impairment has already been pushed through on the cash side.

I wanted to ask you a question just about the pricing side of things and not necessarily what we're seeing today, but maybe going forward. When you guys look at kind of the business model, I mean, you're talking about fleet cost being down, call it, maybe 20% versus Q4 levels over the next 12 to 18 months or so. You've got interest costs going lower. You also have dealers with a lot of cars and manufacturers trying to figure out what demand is. So if you think about cars being available to the industry and then just the input cost of actually carrying the costs being lower, do your models call for pricing to be at these levels, or do you think we should expect RPD levels to move closer to 2019 levels rather than stay at these levels over the next 2 or 3 years?

John, this is Sandeep here. I'll take that question. See, I think I'll go back to what I mentioned earlier on where, in general, I would say that both the supply side of the equation and the demand side of the equation seem to be pretty much in balance. That being said, I want to actually pivot a little bit to our focus. Our focus is ensuring that we continue to improve RPU. The way we are doing that is by ensuring that we fleet inside the demand curve and make sure that we go after that premium RPD. Now for us, the opportunity I do want to state as we look ahead is sweating our assets more. I think Gil alluded to that from an aspect around improving the work-in-progress inventory and reducing that from a sales and maintenance perspective. The opportunity that we see on the commercial side, actually, that we've uncovered over the last couple of months is a tighter coordination between the fleet team and the commercial team. We've realized that basically, as we operationally execute in trying to fleet under the demand, there's a scope for better coordination and scope for better execution where we could extract a point or two of utilization and still gain the same number of days by utilizing a smaller fleet. So I think there's scope for us to continue to sweat our assets more and thereby manage our pricing to a better extent. So there's a scope for improvement for us there.

Okay. And then just a question on just kind of rightsizing the fleet a little bit. You guys made progress, but just kind of curious on where you're targeting demand for next year? And what areas of the rental market are you willing to give up share? I mean when I think about your business, you've got airport, you've got off-airport, you've got ride-hail, you've got commercial leisure; you could also cut it by Hertz Dollar and Thrifty. Do you plan on like taking a piece of the business and getting that smaller? Or is it more kind of universal saying, 'Hey, we're going to take x amount of fleet throughout all geographies out?' I'm just trying to understand kind of where you're going to try to reduce the size and the presence of the business to get to those goals.

Yes. John, ultimately, our focus is on contribution and ensuring that the assets we allocate yield the right contribution in return. From that perspective, what you're referring to and what we are doing is optimizing the business. We are analyzing where demand is coming from, assessing pricing trends, examining the growth in demand for RO, and making sure we have the appropriate fleet in the right locations. There is no fundamental change in our business model. We are discussing a transformation that emphasizes continuous improvement in our operations to enhance our contribution margin. So, it's not a fundamental difference; it's an ongoing process of continuous improvement and optimization.

I just want to go back to the DPU side of things. You lowered the target from $325 now into the low $300s, potentially even below $300 range. But I want to get a sense; I mean, when you think about this, is this being driven in part by some of the incentives that OEMs are currently offering? Or is this what you're seeing right now in terms of normalization? Is that something that you believe is more sustainable over the longer term? And then also, if you could just talk about if there's been any shift in mix associated with those vehicles that you're buying right now, that would be helpful.

Yes, thanks, John. I'll address this, and you can join in if you'd like. I believe there are two main factors that give us confidence in maintaining a sub-$300 DPU. First, market conditions have returned to more historic levels, especially after the aftermath of COVID. Second, we've completed a significant number of deals for the model year '25, which align well with our fleet objectives and their economics. The normalization of market conditions is one aspect, but also, our fleet strategy has fundamentally changed, allowing us to sustain this level beyond '25 with a normalized deal environment. Moving forward, we believe this is sustainable. We now have a dedicated team that focuses on a comprehensive return on asset strategy, considering fleet acquisition, selling, and optimizing hold periods. As Sandeep mentioned, we aim to maximize the efficiency of our assets, enabling us to do more with less and operate with a smaller fleet while maintaining productivity. Regarding your question on mix, we are aware of it and are now focusing more on our customers' bookings and demands rather than the purchases made during COVID to maintain fleet levels. We have a better capacity to optimize our mix than ever before. On the sales side, with the changes in our fleet strategy, we are now working with shorter hold periods and optimizing sales at the best time and through the right channels. Therefore, the combination of market conditions and our fleet strategy changes provides us the ability to sustain a sub-$300 DPU.

Okay. And then just two quick follow-ups here. First of all, you did, I think, mention last quarter that you're about 30% through the fleet refresh. If you could just provide an update on how far you are now? And then secondly, if you could just comment in terms of returning to the capital markets, what sort of additional liquidity cushion you might be looking for to the extent you can provide that color?

Yes. So first on the fleet rotation, we continue to make progress. We're north of 40%. I've just referenced to you to some of the material we've got published on the presentation side. That will give you some better definition of that.

Yes. I think maybe another add to that is that now that we have a different run-rate DPU, it's probably better to think about the rotating fleet probably in a model year view versus a percent of the fleet that's at a certain depreciation level. And so as Gil said, we're about 40% or so that are in the model year '24 to '25 range; and that's probably how we'll sort of view it going forward.

And then on the liquidity front?

Sorry, could you repeat that?

Can you ask the liquidity again?

I was just wondering, you did talk about returning to the capital markets over the next couple of months or so. And I just want to get a sense for if you can comment on how much additional liquidity you'd like to add there.

Yes. It's still unsure right now what level or which we'll play in the capital markets. But I think it's my desire to probably do that over the next couple of months. We'll figure out the amount and the vehicle by which it looks like it will happen through, but I think it's just prudent to go ahead and do that.

Firstly, with regard to the impairment, will the trip count against the amount of equity versus debt in your fleet as calculated by your ABS lenders? And what are the implications for any capital that might be required to put into the plans to maybe top up fleet equity as a result of the charge?

Yes, this is a noncash charge that doesn't affect any of the financing. It's neutral to the ABS facility, so no impact to any of that.

Okay. Very helpful. And then just another one on the impairment. Will the impairment that, I guess, was excluded from adjusted EBITDA in 3Q, will it benefit adjusted EBITDA going forward via lower ongoing vehicle depreciation? Is that one of the factors helping you to now target DPU below $300 versus low $300s prior?

So the impairment is an expense that we hit in the period. So it will not affect go-forward expense other than we will have less excess depreciation to push through the P&L. I mentioned the go-forward DPU; the Q4 DPU is in the $350 to $375 range. We'll continue to work the remaining excess debt out of the fleet through the end of '25. So we said our target is below $300, which we expect to get to by the end of '25. So you could sort of straight line from $350 to $375 to the sort of sub-$300 level by the end of '25 as you model it out.

Got it. And then just lastly, to follow up on the comment about looking to be active in the capital markets in the coming months and understanding that you're not sure how much you might want to raise, but just sort of like considering where your debt is trading right now, where your equity is trading right now, what's the general thought process for trying to think about in the interest rate environment, whether you might want to raise equity, equity-linked versus debt capital?

Yes, I think the focus now would be to raise debt capital. I don't think there's an appetite for equity capital at this point.

I think you mentioned with the impairment that there's kind of less to push through going forward, but you may not quite be done. Could you kind of quantify and help size that a little bit, especially in terms of I don't know how many EVs are left after the markdown or anything that can kind of provide some color there?

Yes. So look, I think you could sort of get to the excess debt from this sort of $350 to $375 range down to, call it, sort of $300 for easy math, that differential, we would sort of call the excess debt. I think that's a good way to do it. And then sorry, what was the back end of the question there? Can you repeat that?

On the EV side of things, like kind of how far through that you are now in the...

Yes. As we've mentioned before, the EVs are less than 10% of the fleet today. So we've sort of rotated through a vast majority of that move. The remaining EVs are strategically placed in our fleet, so we're happy with those levels. I think it's really about the ICE being the large portion of the impairment. And as we think about DPU.

Got it. Okay. And then switching gears a little bit for my follow-up. Clearly, you guys and Avis as well, transaction days have been down as you're both kind of prioritizing that high-value business. The TSA volume is still up. It seems like maybe there's just some higher competition from other players as well. And I think as you kind of look to de-fleet more. What is the right level to kind of think about the next year's transactions? Is it fair to say that can kind of continue to be down? And how much is kind of competition from, say, Enterprise kind of a factor here?

Yes. Lizzie, this is Sandeep here. I'd say we're not formally giving any guidance for 2025, including anything on transaction days. Our strategy remains unchanged in going after RPU as such and while still maintaining scale.

Yes. And just to add then, I also think we can produce the same number of days with a much smaller fleet. So that really is our focus is to drive utilization.

Okay. And anything on the state of competition, whether that's kind of increased or not?

Nothing that's fundamentally different in the industry.

I believe the last time we spoke, you focused on enhancing RPD dynamic pricing. Have you seen any results so far? Could you share some of the early progress you've observed in that area?

Yes. So when it comes to the utilization of dynamic pricing, I think the biggest example I can use is that we've driven successes basically in our value-added services, that's a place where there's significant sensitivity from a customer-type perspective and from a location perspective. We've gone ahead and actually executed dynamic pricing in value-added services, and we've seen significant gains from that strategy. We're going to continue to be as a commercial team, heavy into a test-and-learn approach across the board, whether it's dynamic pricing or other elements of driving improved conversion, improved monetization of our assets. So what I can say is that the commercial team has increased the frequency as well as the quantity of testing that we are doing across the board with dynamic pricing being one example of that. I expect a significant improvement in our ability to monetize our assets as we move forward.

Got it. And then I guess on the impact of the hurricanes, if you could quantify any impact that we should think about that happened within the quarter? Or it would happen in 4Q that would be really helpful, or how you guys are thinking about that?

Yes. So in terms of the impact of the hurricane, we had, of course, two significant hurricanes. One just preceded the quarter and then the other one that fell in the first half of October. Generally speaking, what you would see is demand goes down just preceding when the hurricane hit, of course, with customers basically not flights being canceled and customers not wanting to travel, other than the customers who want to leave some of the locations that are affected, and so we supported a lot of that through one-way rentals out of the regions, especially in Southwest Florida. Then what you see is basically in the following days, you see an increment in activity in those locations, first through first responders, which we ensure that we have vehicles made available to them. And then even from the local population, as you see more rental demand come through. So net-net, I'd say, not a significant impact on the quarter and overall pretty benign.

I wanted to follow up on a previous question about the fleet refresh. Has the liquidity situation affected the fleet refresh regarding the mix by segment or by OEM? Or do you believe you approached the refresh in a way that allowed you to align the fleet fully with the business you want, without being overly concerned about the deals available, which may have influenced the refresh in previous years?

I'll start. Scott, you probably want to comment as well. But no, we have certainly taken a long view of fleet rotation because it's fundamental to the business model; it's our economic engine. So we've approached this in terms of what does that rotation look like optimally? And while liquidity is always something we have to manage, it has not really changed the way we are the approach that we've taken to rotate the fleet or the deals that we've done.

No, that's right. I mean, we've talked about being conservative with liquidity. So it's not a restrictor in our ability to optimize the fleet and the timeframe we want to do it. So to date, that has not been an issue. We're being very strategic about what we buy and how we buy it.

Great. Maybe we could also just talk about the DOE per transaction day and your guidance of getting to low 30s. How much of this is systems optimization that you need to do and sort of refreshing your overall systems? And what's the type of resource outlay that you'll need to dedicate to get the systems in line to unlock that low $30 BOE per day?

Yes, Dan. So that's a multilevel question just sort of answer. From a systems perspective, I think you're talking IT. But for us, it's really about process, is I think the key unlock for us across the board. We've already seen considerable progress in all operating components. We're actually down quarter-over-quarter and year-over-year in all of the operating components of, oddly enough, that the headwinds are happening on revenue-related expenses and some of the license and tax pieces. But the biggest is insurance. A fairly sizable year-over-year increase in insurance costs and claims that we have to manage like no excuses for it. I mean, that's one of the things I mentioned before is that we have to manage the entire P&L, but that is a significant headwind. The things we're focused on operationally, around process and data, and making sure we can unlock waste, that Gil pointed to, we are seeing good progress. But these things are not snap-your-fingers fixes. So we're taking them in chunks; the business as aggressively looking at all of the things we can do in the short run with a long-term view around sustainable cost efficiencies. So we're excited about the progress, but there's a long road ahead for getting all of these things unlocked. Operationally, we're excited about the process improvements, and that's the system. I mean, there is going to take some IT and data progress, but it's not a large capital investment; which I think is the sort of key component here is that this isn't about spending money. This is about operating what we do today.

Yes. I would just add, I think that's a good summary. A couple of things of note to it is a fundamental change in the way we're approaching unit costs. Foundationally, we spent a lot of time putting what I would call management operating systems in place, driving the right focus, the right goals of the organization because we want a culture where, one, you get what you measure. That management operating system is really a process that drives results like unit cost management. Starting with the right goals, having good reporting, having the reviews, the ability to cut data to action, and it's a closed loop; it never ends. That management operating system, which is foundational to everything we're doing, cost being one of those, we've stood up. The other piece, there's obviously a lot of work, a lot of initiatives that fit to the cost - unit cost goals. There are buckets that we've talked about before that we continue to make progress in maintenance costs, supply chain, productivity, real estate, collisions, all those things. And then there's the tailwinds really from a newer fleet that we're rotating into and higher utilization. All those things we would expect to positively affect unit cost. But Scott alluded to it; to me, the enablers are also really important: doubling down on people, first of all, having the right team that can manage results and unit cost being one of those. Leveraging TAT, to your question, Dan, I think, is another big opportunity. We've got great partners on the tech side, and we've also got a great internal development team. Candidly, we're playing a little catch-up here, but we've got the ability to leapfrog in a number of areas, and that's our focus. The process in terms of process engineering because that's a big lever for us. That's a lever for utilization as an example, but for everything; kind of rethinking from a process engineering how we're doing business. So to Scott's point, it's really a fundamental shift in our culture to manage unit cost going forward.

I would like to gain a clearer understanding of the initiatives related to utilization. Specifically, I am curious about how to maintain or increase transaction days with a smaller fleet. Could you elaborate on what this might involve? Does it include adjustments during peak and off-peak times, considerations for different brands and regions, or the use of technology? Additionally, as we monitor this progress, should we anticipate a more significant impact on metrics such as RPD and DOE? Where will we most likely see these benefits reflected in our unit metrics?

Yes, this is Sandeep. I'll address that, and then Gil can add his thoughts. When it comes to driving utilization, there are a few key components to consider, and there may be more. First, overall total utilization reflects the inefficiencies in the sales process, including vehicles available for sale and those not in service. Gil mentioned this in his comments, and we've identified significant opportunities to eliminate waste from our fleet that isn't being used productively. Next, regarding our rentable vehicles, I touched on this in my previous remarks about the newly formed fleet management team and their collaboration with the commercial team. There's potential for improvement here. We need better coordination to ensure we're aligning our fleet with demand and responding more swiftly to changes in demand levels. We are actively working on this, but as with any process changes related to fleet management, it will take time to see results. The third component is managing off-peak periods, as you mentioned, Christopher. Our commercial team can segment our offerings more effectively and is currently working on strategies to generate additional demand during these off-peak times. Additionally, we can optimize the regional placement of our vehicles. These factors are all significant and represent ongoing efforts. While some of these initiatives will take time to implement, our ultimate goal is to boost our contributions and enhance our average revenue per user. I believe these strategies will support that aim.

Yes, Chris. I'll just add to that. I mean, Sandeep called out three components, but I think there are a ton of levers we can pull. There's geography, there's fleet mix, there's brand dynamics, vehicle types, targeted marketing efforts. There are a lot of places we can get sophisticated in that analysis. And again, that's what we're doing. The efforts are definitely underway.

So we talk a lot about continuously improving the customer experience, and I think that's something we can get into. Engaging people behind decisioning, increasing their savvy and how they can utilize customer insights to make better pricing decisions dynamically—these are all directions we are headed.

This concludes the Hertz Global Holdings third quarter 2024 earnings conference call. Thank you for your participation. You may now disconnect.