Hertz Global Holdings, Inc Q2 FY2025 Earnings Call

Welcome to Hertz Global Holdings Second Quarter 2025 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, sir.

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 want 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 statement sections 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 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, who will discuss operational highlights and our fleet. Our Chief Commercial Officer, Sandeep Dube, will then share insights into our commercial strategy followed by Scott Haralson, our Chief Financial Officer, who will discuss our financial performance and liquidity. We are also joined by Darren Arrington, our Executive Vice President for Revenue Management who will be available to answer questions during the Q&A session. I'll now turn the call over to Gil.

Thank you, Johann, and good morning, everyone. First, I'd like to thank the team at Hertz for their hard work and dedication over the last quarter. Our people continue to lead this transformation, driving execution, improving operations and strengthening performance across the business. When we introduced our Back-to-Basics Roadmap last year, we didn't just make a strategic pivot under new leadership. We began a multiyear journey to reset the foundation of the company and position Hertz for the future. This transformation isn't about broad strokes. It's about driving fundamental change starting at the core of our business and rebuilding it from the ground up. At Hertz, we believe transformation is earned. We know that through disciplined execution and operational excellence, we will drive tangible results for our customers, our team members and our shareholders. That's why we've been transparent about our goals, clear about our progress, grounded in the details that drive performance. And this quarter, we delivered our best set of results in nearly 2 years. For the first time in 7 quarters, Hertz delivered positive adjusted corporate EBITDA, a nearly $0.5 billion year-over-year improvement. We exceeded our North Star target for depreciation per unit, achieved the highest second quarter retail vehicle sales in 5 years, and had our highest fleet utilization in nearly 2 years. These gains supported $2.2 billion in revenue for the quarter and underscore our ability to utilize the assets and do more with less. Importantly, we also improved our direct operating expense per transaction day despite lower year-over-year volume, a clear sign of growing operational leverage. What's behind that progress? The same three financial pillars we laid out at the start of our journey, disciplined fleet management, revenue optimization and rigorous cost management. Powered by our people, technology and processes. These are the fundamentals for long-term durable profitability. Let's dive deeper into these results and begin with the fleet. At its core, Hertz is an asset management company that buys, rents and sells vehicles with the scale and brand recognition earned over more than a century of service. Our fleet is our most powerful economic lever. And we knew that any meaningful transformation had to start there. Over the past year, we've moved aggressively to rotate the fleet and realign the mix to better reflect customer preferences. That progress has proven core to building our new foundation, resulting in tangible financial impact, measured best through the results delivered by our Buy Right, Hold Right, Sell Right strategy. We achieved depreciation per unit of $251, well below the sub-$300 North Star target thanks to our early action on favorable model year 2025 pricing and a timely acceleration of our fleet rotation. In the first quarter, we navigated a challenging environment marked by unpredictable travel demand and tariff developments. Confident in our strategy but mindful of the risk to demand and potential oversupply of fleet, we continued our fleet rotation in earnest selling off older, higher depreciating vehicles into a strengthening residual market while optimizing for our peak season. While the fleet size declined year-over-year, the quality of our assets improved setting the stage for better unit economics as we complete the rotation. This approach proved effective, yielding strong cash proceeds and positioning us for more efficient growth. As a result, 80% of our U.S. core rental fleet is now less than a year old. This younger fleet is driving better reliability, lower maintenance costs and stronger customer experience all while supporting lower depreciation. Looking ahead, we're applying the same disciplined approach to model year 2026 vehicles. Despite supply chain-related delays, we're progressing in our negotiations, diversifying our OEM relationships and maintaining flexibility as the industry continues to navigate any economic headwinds. Our refreshed fleet gives us flexibility to navigate this uncertainty. We also had our best second quarter for retail vehicle sales in half a decade building on the momentum achieved in Q1's record performance. As we continue to elevate and expand awareness of our Hertz car sales channel, we partnered with Cox Automotive to support a fully digital transaction, meeting customers where they are and enhancing how we engage across the car buying journey. Their deep consumer insights through platforms like Autotrader will help inform and strengthen our marketing, pricing and retail strategy as we scale. We're also seeing strong momentum in our rent-to-buy program, which continues to deliver one of the highest conversion rates, a clear sign that our try before you buy model is resonating. It combines the flexibility of our rental with the convenience of ownership, and it's proving to be a meaningful driver of volume and customer satisfaction. Beyond that, we're expanding our technical partnerships and digital integrations to improve visibility, ease and reach ensuring our vehicles are present on the platforms where consumers are already browsing and shopping. These efforts are designed to drive greater awareness, stronger engagement and a seamless path from interest to ownership. Shifting gears, our revenue results were down commensurate with our decision to reduce our fleet size for the reasons I outlined earlier. Our intent is to earn the right to grow again as we complete our fleet rotation, and our unit economics fall into line. The headline on RPU is encouraging, essentially flat year-over-year when adjusting for car class mix shift, which was margin accretive. As you peel back the elements that make up RPU, we're making some great headway in demand generation and utilization, but have work to do in pricing. We're staying focused on what we can control in this area and are encouraged by the market setup going forward. With tighter supply resulting from OEM supply chain disruptions and recalls, along with growing macro demand. Our rigorous efforts to control costs also showed progress this quarter. Despite previously mentioned insurance and rent expense headwinds, direct operating expense per transaction day was down year-over-year, driven by a younger fleet, better supply chain leverage, productivity improvements and tighter operating discipline. We expect these efficiencies to continue improving our P&L as we work towards North Star target of DOE per day in the low 30s. Given the pace of change in this transformation, we need to stay focused on how we make Hertz the most preferred rental car company in the world. As we improve the core economics of our business, we're focused on how we leverage the strength and foundation to deliver an improved customer experience, putting our customers at the forefront of everything we do. Net Promoter Score improved 11 points year-over-year, and we are seeing stronger enrollment in our loyalty programs, but our job is to continue earning our customers' trust every day by delivering value, consistency and reliability. That's what we've set out to do with our digital vehicle inspections. For over 100 years, manual damage inspections have caused confusion and frustration, creating unnecessary friction with customers. This technology is designed to bring much-needed precision, objectivity and transparency to the process while improving our ability to proactively identify specific maintenance actions and drive further operational efficiency. We know change of this scale takes time and we're listening, learning and improving every day. Our goal is to enhance the customer experience by removing friction, sharing transparency and building trust not just for the 3% who experienced damage but also for the 97% who don't. Before I hand it over to Sandeep, I'll just say this: transformation doesn't happen overnight, but by tackling the largest economic lever, the fleet, first, we created the foundation needed to move faster and smarter. We can now empower our customer team to act with greater speed and precision at a local market level to capitalize on pricing and revenue opportunities and meet customer demand. There is still a lot of work to be done but we're making measurable progress in our operations, and doing it the right way for staying disciplined, controlling what we can and executing with precision to earn the right to grow. With that, I'll turn it over to Sandeep.

Thank you, Gil. Good morning, everyone. On the commercial side, we are focused on the foundational improvements that drive RPU towards our North Star metric of over $1,500. These efforts will directly enhance profitability and strengthen our position for future growth. In Q2, revenue was down 7%, in part due to, as Gil mentioned, running a smaller fleet down 6% year-over-year. In that environment, we built momentum on demand generation and utilization but faced challenges with pricing. Going forward, we have a clear commercial strategy to unlock the value where we see significant potential. Our strategy begins with our ability to sweat our assets and drive more days for a given fleet size, which you've heard is yielding results. The utilization improvement in Q2 was driven by our world-class tech ops team, reducing out-of-sales vehicles, improved demand generation from our commercial and operations teams and better alignment of capacity and demand, driven by our fleet planning and revenue management teams. This utilization performance also supported a sequential improvement in year-over-year RPU even within a competitive pricing environment. Looking ahead, we believe pricing represents one of our largest opportunities to unlock further value. To capture it, we are executing against a detailed plan starting with the transformation of our revenue management platform. Our current system, originally implemented in 2004, relies on outdated forecasting methods and batch-based optimization; it lacks real-time data and is not integrated with adjacent functions like capacity planning. It also fails to reflect localized market dynamics or respond to real-time demand signals and is over-reliant on human judgment. To change that, we are several quarters into a multiyear partnership with Amadeus, a global travel technology leader, to replace our legacy RM system. The new platform will introduce sophistication like that seen in the airline industry including real-time optimization, dynamic forecasting and integration with adjacent systems. Our next major upgrade remains on track for deployment at the end of Q3. The same rigor we apply to our operational overhaul is now guiding how we approach commercial execution at the local level. Mid-quarter, we launched new initiatives that empower and incentivize field leaders to drive profitability in their specific markets. Even in the early stages, we've seen value creation emerge from local teams identifying and acting on fleet and demand opportunities. As this effort matures, it will further enable more effective pricing and higher margin decision-making. Stronger demand generation, particularly in durable direct channels, is another foundational lever. We saw a sequential improvement in direct website sales. A standout metric this quarter was a 100% year-over-year increase in new U.S. Hertz loyalty member sign-ups, accompanied by increased member booking activity. We also made progress on revenue diversification with sequential growth in both our off-airport and mobility business units. At our last earnings call, we had expected firmer pricing as we stepped into summer. However, the Q3 pricing environment started challenged, but the conditions are improving. Domestic air travel returned to positive year-over-year growth in July, supply constraints from model year '26 uncertainty and manufacturer recalls are tightening supply with recalls currently affecting approximately 2% of our U.S. rental fleet. For Hertz, U.S. leisure forward bookings are currently tracking ahead of planned lead capacity, demand strengthening and supply is getting constrained. While the challenged second quarter trends continued through July, our U.S. forward bookings for August through the fourth quarter are quickly narrowing the gap to last year's RPD trends. While this is materializing later than expected, we are increasingly optimistic about pricing in the second half of the year. In summary, our gains in utilization are accelerating and we have momentum in our demand generation channels. We have an actionable plan to address our largest opportunity in pricing through technology modernization, revenue management strategy refinements and local market empowerment. Our focus remains on strengthening the core profitability of the business to serve as a large path for future growth.

Thanks, Sandeep. Good morning, everyone. Great to have you on the call today. Let's start with our second quarter financial results. Total revenues were $2.2 billion, and adjusted corporate EBITDA came in at a positive $1 million, which was consistent with our guidance and an impressive turnaround from a loss of $460 million in the prior year, with a similar improvement in adjusted operating cash flow. It's a clear indication that we are making significant progress. While we've taken a moment to celebrate this milestone with the team, we're already focused on the next one. Fully aware that continued progress will require sustained effort and execution. So a big high five to the team for the accomplishments so far, but now it's on to the next play. Looking at our key operational metrics, RPU was $1,400, down slightly year-over-year and flat when adjusted for our change in fleet mix. Vehicle utilization reached 83% in Q2 marking a 300 basis point improvement year-over-year. This improved performance highlights our ability to optimize fleet deployment while maintaining service levels. While there is solid demand generation, execution of our pricing initiatives will unlock material margin expansion, underscoring the strength of our fleet strategy and a favorable residual value environment. DPU came in well below guidance at $251 per unit per month, exceeding our North Star target by 16%. This is a meaningful improvement, both sequentially and year-over-year. On a gross basis, DPU was around $280. Net gains on sale represented about $30 per unit per month driven by strong residual values achieved through our optimized disposition channels and our continued disposal of older vehicles. We expect gross DPU to remain under $300 for the rest of the year. We don't expect to have the same level of gains on selling in Q3 and Q4 due to an expected lower volume of sales than in Q2. So our net DPU numbers will likely be closer to our gross DPU numbers. In addition to fleet, our operating cost management initiatives continue to yield positive results. Direct operating expenses or DOE declined 3% year-over-year on an absolute dollar basis. DOE per transaction day of about $36 improved sequentially and year-over-year, reflecting disciplined cost control and operational agility. Despite the reduction in capacity, SG&A remains well controlled through focused expense management and increased operational efficiency. Once again, we hit our internal cost targets, and we expect to continue to do so as we execute on productivity. While we have more work to do to achieve our North Star DOE goal, these results reflect the continued execution of our transformation strategy and our commitment to building a more resilient and profitable business model. Our liquidity at the end of June was $1.4 billion, a stronger position than we had signaled on our last earnings call. This was obviously bolstered by the delay of the Wells Fargo litigation resolution as the Supreme Court continues to consider whether they hear our appeal. During the quarter, we executed on a series of smaller transactions, which enhanced our liquidity and made efficient use of the balance sheet. We have no significant corporate debt maturities until the end of 2026. On the ABS side, we completed several business-as-usual transactions that were well-received by the market, demonstrating continued investor confidence in our business model and asset quality. Our ABS facilities remain strong, buoyed by a positive residual value environment with our ABS fair market values at about 110% of our net book values, resulting in an equity cushion of about $1 billion as of the end of June. For our forward outlook, we anticipate maintaining our fleet size at approximately 6% below 2024 through year-end with flexibility to adjust based on demand signals. Our model year 2026 acquisition process is delayed versus the typical schedule as the industry continues to navigate supply chain volatility, however, we are cautiously optimistic about where things will end up. Plus, the significant number of model year 2025 acquisitions and the corresponding economics on those vehicles gives us a lot of optionality and flexibility. And while the pricing uplift we anticipated from both our own initiatives and the macro environment is materializing later than expected, we are now seeing early encouraging signs in August. However, with a limited data set, it's too soon to extrapolate this fully into the second half of the year's outlook. For the third quarter, we expect our adjusted corporate EBITDA margin to be in the mid- to high single-digit range, which incorporates an overall muted revenue forecast relative to what we said on the last call. We continue to expect the third quarter to show our first positive EPS since 2023, which is another milestone for the transformation. For the fourth quarter, we still expect a slightly positive EBITDA margin based on improved pricing due to macro vehicle supply constraints, recent pricing trends as well as our own revenue initiatives. While the directional commentary on EBITDA still holds, the overall levels of positive EBITDA are slightly lower for Q3 and Q4, thereby pushing our full-year EBITDA levels to slightly below breakeven versus our previous estimates of slightly above. For the longer term, we are confident we are still on track to achieve adjusted corporate EBITDA of $1 billion by 2027. Overall, we remain committed to our transformation, and we are pleased with where the initiatives are tracking. There is a lot of background work on process, reporting, intelligence, insights and the underlying platforms that allow us to continue to make better and better decisions. This is where a lot of critical work happens that doesn't always show up in the quarterly results. However, we know these are key unlocks to future performance and we are excited to see the results of these initiatives. So again, proud of the progress to date and getting to our first financial goal of positive adjusted corporate EBITDA, but now the team has tasted some success and has rallied around where we can go. Exciting times to come. With that, I'll turn it back to Gil for closing remarks.

Thank you, Scott. To reiterate, this quarter, for the first time in nearly 2 years, we delivered positive adjusted corporate EBITDA and almost a $500 million year-over-year improvement. Alongside record retail vehicle sales, stronger DPU and meaningful gains in utilization, customer satisfaction and cost efficiency. These results show we made real progress and are just the stopover on a longer journey. We are clear-eyed about the work still ahead and just as confident in our conviction about where we're going. Hertz has the scale, brand and operational expertise to lead again. With sharper operations and a world-class team, we're building a business that's not only executing against the North Star metrics but positioning to lead in the next era of mobility. And we're focused on getting it right, and our playbook, disciplined execution and bold transformation go hand in hand. Our momentum is real, the vision is focused. Our team is united in building a company fit for the future without trying to jump ahead of it. With that, let's open it up for questions. Back to you, operator.

Our first question will come from Chris Woronka with Deutsche Bank.

Gil, maybe we could start off with a very kind of a longer-term question, that would kind of be how you guys envision kind of in the future of AVs and robotaxis and things like that?

Yes, thank you for the question, Chris. First, Hertz definitely has a future role in automated vehicles and robotaxis. My team and I are familiar with this space, and I believe the technology is effective. The introduction of automated vehicles will significantly enhance road safety. I see that as the cost of these vehicles declines, the economic impact will be transformative. We have a key role to play in the future of mobility, and partnerships are inherent to what we do. The robotaxi market represents a substantial opportunity, and it's not a winner-takes-all scenario. We are among a select few companies with all the essential elements to be influential in this space. We have a well-recognized brand, a global operational presence, a commitment to operational excellence, advanced maintenance capabilities, and extensive fleet management expertise. We also have experience with electric vehicles, which will likely be the foundation for all automated vehicles. Additionally, we are an asset-heavy business with vehicle financing capabilities. Ultimately, our ability to own and operate large fleets of vehicles underpins our business and will support the automated vehicle and future mobility landscape.

Okay. As a follow-up, I was hoping we could maybe dig a little bit deeper into the RPD. And I know you like to sometimes look at it more on an RPU basis. But just on RPD and kind of what was printed in Q2 and your commentary, is there any way to break it down how much of that is mix versus kind of what's been going on in the market? And do you think that breakdown or split is applicable to the back half of the year as well?

Yes, Chris, thanks. This is Sandeep here. I know you mentioned we prefer to focus on RPU instead of RPD. Let me start with RPU and then I will definitely address your question about RPD. Overall, our revenue is showing positive growth. In Q2, we saw a sequential year-over-year revenue increase of six points, along with a one-point improvement in RPU. We manage our revenue by prioritizing RPU as our primary metric, while also considering RPD and local market utilization, much like the airline industry does with RASM as its key measurement that balances yield and growth. In Q2 specifically, RPD decreased by about five percent but would have been two to three points better if we accounted for changes in fleet mix. The market faced significant challenges in Q2, with overall pricing down in the mid- to high single digits. However, we have made considerable efforts to enhance our segment mix and improve our revenue management strategies, allowing us to better capitalize on the demand we generate. Looking ahead, as we discussed earlier, our greatest opportunity for year-over-year improvements lies in our pricing strategy. Our revenue management system is somewhat outdated, which can complicate making optimal decisions. Over the coming quarters, I believe that, while it may take several years, the impact on our year-over-year performance will be significant. I'm genuinely excited about the path forward, and the entire commercial team shares this enthusiasm.

Your next question will come from Ryan Brinkman with JPMorgan.

I didn't hear much discussion of recalls in your prepared remarks and your utilization rate was very high during the quarter, which would be hard to achieve in the current recall environment. So I'm curious if you might have been disproportionately less exposed to the vehicles that were recalled or maybe the younger nature of your fleet now post rotation might have left you less exposed? Or just how recalls you think impacted the quarter and then what your outlook for their impact might be going forward?

Yes, thank you for the question. For the second quarter, we didn't face significant challenges from recalls. It's actually in the third quarter that we expect to feel the effects. Currently, about 2% of our vehicles are on recall, which is approximately 1.5 points higher than usual. We have seen an increase in recalls as we got into the summer. As you know, we can't rent out vehicles that are on recall, which limits our options. Our tech operations team is top-notch and proactively works to identify and address any potential recalls before they take a vehicle out of service. A lot of the issues we are seeing stem from manufacturers not having a fix ready or parts not being available. It's also worth noting that not all manufacturers are the same in this area, so the mix of our fleet is important. Importantly, our younger fleet generally has less exposure to recalls.

Okay. Great. And obviously, great performance on depreciation per unit during the quarter. Thanks for the breakout of how much of the gains on sale contributed and how we might expect that to go forward. But I'm curious on the contribution from the higher prices achieved by selling more through the vertically integrated retail channel. Like how much of the higher sales volume at retail, the second-best in 5 years was driven by a higher level of dispositions generally as maybe you were more successful in securing 2025 model year vehicles earlier because you're reducing the size of the fleet year-over-year versus how much was maybe driven by some initiatives on your end, perhaps structural in nature to drive a higher percent of dispositions through retail going forward?

Certainly. It all starts with our strategy, which outlines the actions we've taken to reduce depreciation, including addressing your question. We are focused on developing a comprehensive strategy we refer to internally as Buy Right, Hold Right, Sell Right. Each component has significant depth. On the buying side, we recognized early on the challenges we faced with our fleet, and the team successfully transformed these challenges into competitive advantages as part of our fleet rotation strategy. When procuring vehicles in 2025, we aimed to align our purchases with our customers' preferences as closely as possible. We adopted a more analytical approach regarding the economics of buying, considering the implications for the vehicles' resale value. Our goal is to optimize the hold period for better depreciation and returns on assets. On the selling side, it’s crucial that we maximize the net gains from our sales, focusing on how we manage retention value from purchase to sale, particularly emphasizing the importance of sales price. We are leaning more into retail channels as they provide the best returns. Our internal car sales website is a primary sales channel, and the team is making strides in digitizing that process. Additionally, our partnerships have helped expand our sales capacity, and we intend to grow these further. We continuously benchmark against best-in-class performance to identify opportunities for increasing net returns on vehicles, including analyzing finance and insurance opportunities and reducing reconditioning costs. Overall, we are addressing the full spectrum of our operations. It's also important to consider seasonal demand in our rental business. We utilized a strong marketplace for vehicle sales during the quarter to accelerate fleet rotation by selling older, higher depreciating vehicles. This strategy positions us positively for the future, and even under current conditions, we saw some good gains. Market dynamics also played a role in these gains, all supported by our fleet team's strategy.

Your next question will come from John Healy with Northcoast Research.

Gil, wanted to ask a little bit more on the fleet side of things, particularly as you discuss the relationship with Cox Automotive. I've always thought about them as more of on the wholesale side of things more so than retail. So I was just hoping you could explain kind of what you're doing with them and how those cars are getting retailed if it's to dealers or if it's direct-to-consumer? And does this represent maybe a departure or a change in the relationship that you had with Carvana?

Yes, thank you for the question. First, let me say that Cox is an excellent partner. I've known them for many years, even going back to when I was 18 and used Autotrader to look for cars. I have great respect for the company. Regarding our partnership, one of the key opportunities we have is in the digital transformation of the selling experience. Rather than following the traditional method of selling cars, which involves displaying them at a retail lot and negotiating prices, we have collaborated with Cox to digitize the entire documentation process, which typically involves a lot of tedious paperwork. This digitization improves the customer experience and enables us to reach a much larger market for car sales without the need for physical lots. We can advertise and conduct transactions digitally, opening up many opportunities for us. Our rent-to-buy program also contributes to this, allowing customers to rent cars, experience them, and then make a purchase. Additionally, Cox has assisted us with our pricing strategies. They have vast wholesale and retail data, thanks to platforms like Autotrader, which helps us leverage AI for pricing. This enables us to understand the retail market at various levels, including make, model, trim, and location, as well as the pricing dynamics over time. We incorporate all this data into our systems to optimize vehicle pricing. Overall, they are an outstanding partner, and we are engaged in various initiatives together.

Great. Sandeep, I wanted to follow up on your comments about RPD performance. You mentioned that pricing was down by mid- to high single digits for the industry. However, it seems that Avis's pricing appears to be slightly better or lower than that. Given this perspective, does it indicate a significant change in your observations from enterprise, or could you provide any additional insights?

Yes. When we compare the year-over-year pricing for a specific brand, it's important to consider the strategies they used last year compared to this year. That dynamic is definitely in play. Additionally, our primary focus is on revenue per user, and we are striving to find the right balance between utilization and revenue per day at a local market level. Our approach this year differs from last year, which is reflected in our revenue per user performance. Similar to the airline industry, we are emphasizing revenue per user and balancing it at the local market level. That's all I want to say on that.

Your next question will come from Stephanie Moore with Jefferies.

I wanted to follow up on maybe the updated EBITDA outlook for the full year. And if you could talk a little bit about what drove the slight adjustment of going from maybe just slightly below breakeven versus slightly above before.

Yes, Stephanie, this is Scott. I'll start. I'm sure Sandeep and Gil want to chime in, too. But I think what we're really talking about here, we kind of hinted at this in the prepared remarks, was that in our base assumption really through the summer and into the back end of the year was based on a certain curve of sort of pricing moves. We did see a bit of a delay in that. Honestly, the Q2 pricing, as we talked about, wasn't as strong as we had hoped, but we're starting to see cracks in that as we head into August and into the meat of the middle of Q3 and into Q4. So I think what we're talking about here is that, that sort of delayed pricing move has caused the math to come down slightly. So I think we're just sort of revising the volume of kind of what we thought around pricing and total revenue for the back end of the year. But I think Sandeep kind of hinted to a lot of the green shoots that we're seeing that do give us a little bit of optimism. But like I mentioned, limited data set so far, so we're not ready to extrapolate that throughout the back end of the year yet.

Yes, this is Sandeep here. I'll cover that. In the U.S., we observed that certain segments, specifically corporate, government, and high RPD inbound, experienced significant declines in the first half of the year due to known reasons. These segments seemed to plateau in June, and since then, all three have shown improvement. The corporate segment was down by mid-single digits but improved by about 3 to 4 points in July due to demand. The government sector also plateaued but was down 25% to 30% in June, with a 5-point improvement in July. For the inbound segment, we noticed positive demand from APAC and Latin America, although EMEA had reduced demand in the first half of the year. However, we saw some improvement in EMEA in July as well, and overall inbound demand was positive by 1 to 2 points in July, with early August trends continuing to show improvement. This indicates that our demand profile is getting better. Regarding forward bookings, we are booking ahead of our planned fleet capacity, reflecting improved demand, although it's still early in the trend. We are also making changes to our revenue management strategies. Overall, I feel increasingly optimistic, but we need to see more progress. Yes. So just to put that all together, so it sounds like demand environment, optimistic, stable, maybe a little bit better. As you noted, pricing environment maybe a little bit worse than had expected. And then how would you layer in maybe the overall used price environment and expectations around vehicle gains and DPU versus expectations to start the year?

Yes. And then just to follow up on the other side around the fleet. I think the assumption going forward is that we generally expect stable residual values. We talked about gross DPU being somewhat similar in Q3 and Q4 to what we produced in Q2. Probably won't have the same level of gains, and less volume will be sold through the periods going forward as we did in Q2, slightly less. But all in all, we're expecting pretty stable residual values as we go forward.

Your next question will come from Federico Merendi with Bank of America.

I just wanted to ask you a question regarding liquidity. Could you help us to understand to bridge liquidity from current level to end of year, given that, from my understanding, the second half of the year is a little bit weaker than previously expected? And also, could you give us some more clarity or early comments for 2026, given the potential $800 million, $900 million headwind from the debt repayment and the Wells Fargo liability?

Let me start with 2025. There is a slight downward revision expected for the latter half of the year, but we will be cash flow positive by then. We anticipate improvements in operating cash flow as our business grows. The fleet dynamics in the second half differ from those in the first half, so we expect to finish the year with a substantial liquidity balance. However, I won't forecast the exact amount due to several variable components. The key takeaway is that our liquidity levels are now more stable than in the previous year. The business is positioned better today. We'll assess liquidity based on the production capabilities of the business, our obligations, and our fleet strategy for next year. These factors will influence our year-end liquidity. While I cannot predict a specific outcome, we do expect a higher cash balance as we progress through the year in preparation for 2026. Now, could you remind me of your question regarding 2026?

No, I was just...

On the debt maturities, was it?

Yes, debt maturities...

The debt maturities at Wells Fargo were discussed, particularly regarding the Supreme Court's decision on whether to hear the case. We have set aside funds for this matter. During our last call, we indicated that our target was a little over $1 billion, and we have since surpassed that amount, aside from the potential Wells Fargo implications. Looking ahead to next year, we have significant flexibility in addressing the debt that matures in December 2026. Our cash production and capital market activities offer options. We launched an ATM in May of last year, which we didn’t utilize in the quarter, but it remains a strategic opportunity for raising capital. Additionally, we have other resources available now that weren't an option a year ago, giving us ample flexibility for future considerations.

I wanted to ask about the RPD and DPU. The DPU decreased nicely, and I understand that this is partly due to a change in the fleet mix. How does this change in fleet mix affect the RPD as well? If you reduce the types of vehicles in your fleet, I would assume that customers wouldn't pay the same RPD for those vehicles.

Yes. I believe our strategy involves ensuring that customers exhibit specific booking behaviors. From an economic standpoint, the optimal decision for us is to evaluate this from an EBITDA perspective. By purchasing the right mix of car classes that align with customer booking behaviors, we can achieve a better financial outcome for the organization. One of the metrics affected by this strategy is RPD, as you correctly pointed out. Customers typically pay a higher daily rate for larger or higher-class vehicles compared to smaller ones. However, overall, this approach is financially and economically advantageous for us, which is why we have chosen to prioritize EBITDA over RPD in our decision-making.

Your next question will come from Ian Zaffino with Oppenheimer.

This is Isaac Sellhausen on for Ian. I was just wondering if you could provide a quick update on Dollar and Thrifty. Maybe if you're seeing any type of trade down to those brands or higher growth in them? And then maybe as a bigger picture question, is the goal still to drive kind of higher rate in those brands?

Yes. Our primary objective is to increase average revenue per user for each brand. This is a continuous journey for us. Based on the efforts of our entire organization, I've observed that compared to last year, our premium brand, Hertz, is experiencing growth, which is the direction we aim to pursue. This segment is more beneficial to our margins and showcases the high value of the Hertz brand, attracting consumers. However, Dollar and Thrifty still play an important role, catering to consumers looking for a good balance between value and experience. Overall, we have shifted our focus more towards Hertz.

Okay. And then as a quick follow-up, just on the 2026 year buys. Obviously, a lot going on in tariffs and supply chain delays, I guess. When would you typically be making those forward vehicle purchases? And then any thoughts on the anticipated DPU for those as well?

Yes, I'll try to respond. What I would describe is that after much delay due to the OEM supply chain disruptions, the model year '26 vehicle purchases are starting to gain traction. However, we are staying disciplined to ensure we achieve the necessary economics to meet our North Star DPU target and mitigate any residual value risk in a tariff-type environment. I’m pleased to see that the unit economics and volumes for the model year '26s are beginning to align. Additionally, the accelerated model year '25 purchases and our fleet rotation provide us with a lot of flexibility in managing that transition. While it has been delayed for several months, I believe everything is now gaining momentum on that front.

Your final question will come from Dan Levy with Barclays.

I wanted to first ask about your views on future fleet size because we've had some fleet shrinkage here, and I know that that's more strategic than anything else. But how much more do you think you need to shrink the fleet from here? And then how does that play into achieving your North Star target on DOE given you're not going to have maybe the same scale benefits with a smaller fleet? Can you still get to that low 30 DOE? And what's the timing on that?

Yes, thanks for the question. To begin with, our goal is to grow profitably. We've had to reduce our fleet size in order to position ourselves for future growth, as the fleet was a significant challenge for us. This involved adjusting the fleet to meet our financial targets and establishing a strong asset base to expand from. As both Scott and Sandeep pointed out, we plan to maintain a similar fleet size compared to what you've observed in the previous quarter until the end of the year. However, we have the ability to grow as we move ahead. We are also focused on increasing demand through more diverse revenue sources to reduce our reliance on airport revenue. Our off-airport and mobility businesses have shown promising growth, and we are pleased with that progress. Our main objective is to develop multiple revenue channels that will allow us to expand the fleet and enhance profitability. This has been the core strategy in all our initiatives. As we progress, this will continue to guide our approach. Scott, do you have anything to add?

No, I think that's good, Gil.

Okay, great. I have a question about the balance sheet and cash. First, could you clarify the situation with the ATM you issued last quarter? It appears there was no stock executed. Can you explain your plans for equity issuance? Additionally, on a broader note, you're holding $0.5 billion a year in non-fleet interest. It seems there’s still some time before you reach free cash flow breakeven and can start to reduce that non-fleet debt. What is your strategy for reducing the non-fleet debt? Will it simply involve increasing free cash flow to pay it down, or are there other options like potential equity issuance?

Yes. Dan, great question. Yes, I mean, look, there's a couple of facets to this. I think as we go forward, obviously, the first step in the transformation is getting the business to produce operating cash flow, positive free cash flow for the business. That's the first step in the deleveraging plan, and it will be a key contributor to it. Obviously, as we think about speed and utilizing equity in the business, equity is going to play a role. We talked about the ATM that we launched was the first foray into using equity as a longer-term way to deleverage the balance sheet, and that's the plan. And we'll chip away at it. It's not going to happen overnight. But I think as the business improves, you'll start to see that sort of house of Hertz get built. And we'll use free cash flow, we'll use equity. We'll use better ways to refinance. We'll use some different ways to optimize the balance sheet with the ultimate goal of reducing that non-fleet corporate debt. I mean we all are very well aware of the amount of interest we pay every quarter from that. So something that is at the forefront. But it's a longer-term plan that will happen over time.

This concludes the Hertz Global Holdings Second Quarter 2025 Earnings Conference Call. Thank you for your participation. You may now disconnect.