Welcome to Hertz Global Holdings Third Quarter 2025 Earnings Call. [Operator Instructions] 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 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 Statements section in the filings that 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 the 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 strategy, 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. I'll now turn the call over to Gil.

Thanks, Johann. I want to start by thanking our teams for their exceptional work this summer. Their disciplined execution is moving this transformation forward, and I'm grateful for their continued commitment of delivering for our customers every day worldwide. We said it would take consistent dedicated effort to rebuild this company's foundation no matter the macro environment by focusing on what we can control, disciplined fleet management, revenue optimization and rigorous cost control, and that is exactly what's happening. This quarter, we achieved $2.5 billion in revenue and delivered adjusted corporate EBITDA of $190 million, a $350 million year-over-year improvement and positive EPS for the first time in 2 years. In Q3, we completed our transformative fleet refresh hitting another major milestone and setting a new standard for our sales and the life cycle of our vehicles. With our younger fleet, we also achieved a record high utilization rate since 2018. While we could not control at 2% of our U.S. fleet was under recall, being able to drive record utilization in that environment shows that even when headwinds get in the way, we're able to deliver strong results. Managing with rigor also means keeping our customers at the center of everything we do. Our Net Promoter Score continues to rise, up nearly 50% year-over-year in North America with measurable improvement in ease of rental and confidence in vehicle quality. Fundamentally, Hertz is an asset management company built on a century of buying, renting, and selling vehicles at scale. That's why we set North Star metrics to guide the improvements to our core rental business and ensure operational excellence comes first. This quarter, we maintained our sub-$350 DPU goal, overcame cost headwinds and inflation to lower DOE per day, both year-over-year and sequentially while continuing to execute initiatives that are…

Thanks, Gil, and good morning, everyone. As we continue to improve fleet economics and agility, we are leveraging that momentum to action our commercial strategy. By maximizing asset productivity and strengthening pricing through enhanced customer experience, diversified durable demand and advanced revenue management actions, we have positioned ourselves to deliver both near-term gains and long-term value. This quarter, we delivered sequential year-over-year improvement in revenue, RPU and RPD while achieving record utilization. While we actively manage RPD, we prioritize RPU because it captures both rate and utilization. This helps our team balance rate and days, giving us a truer measure of the revenue generated by each vehicle in a given month. This is especially relevant for lower rate, longer keep rentals like those in our rideshare and off-airport segments, where costs are lower and rentals are longer. RPU came in at $1,530, nearly flat year-over-year and sequentially improved through the quarter on a year-over-year basis. Internally, we also track RPU across our total fleet, which includes all vehicles irrespective of operating status, whether in service, out of service, or in our car sales inventory. RPU on total fleet better measures our economic progress, and that metric improved 2% year-over-year. Breaking RPU into its components, let's dive into utilization first. As Gil mentioned, we delivered record utilization since 2018 of 84% this quarter. Days were nearly flat, thanks to our strategic ability to offset the impact of recalls despite our decision to operate a 7% smaller fleet overall. This utilization rate, which excludes vehicles being held for sale, improved by 260 basis points year-over-year. Utilization across our total fleet, a term which I just defined a moment ago, showed a more substantial improvement of 460 basis points. This improvement was driven by better process management of our car sales inventory. This…

Thanks, Sandeep. Good morning, everyone, and thank you for joining us. I want to congratulate the team on a great quarter. We achieved our first positive EPS in over 2 years, improved RPD and RPU, record utilization and a major leap in NPS scores. That's great stuff, and we are all proud of the progress, but we're only getting started. Tech, we've barely begun. Our focus doesn't stop with being just the best rental car company. Our vision expands beyond that. If our goal was to just be the same old rental car company in the same old industry that has largely been the same for a couple of generations, the value of our business would be limited. Now that is not to say that the rental car business isn't important. It is, very important, critical, in fact. And we'll strive to be the best in the world, but we view it as a stepping stone to bigger ideas. We're building a diverse platform of value-enhancing capabilities that could make Hertz considerably more valuable than today. It's hard to look past the near-term quarter-to-quarter year-over-year metrics the industry typically focuses on. We just don't view them as the ultimate predictors of real long-term value creation. It will be our job to figure out how to eventually tell the story in a way that highlights that value. Over time, we'll publicly release the components of our platform as they become ready, like we have with our digital car sales platform. We had to start with our rental car fleet in order to turn the rental car business up right. There was no avenue to pursue the extended vision until that was progressing. We've been refining our vision over the last year or so and are still doing that today. We have…

Thank you, Scott. This is another quarter where we delivered on our commitments. Proof that our strategy is working. That said, we know there's more work to do. We're holding ourselves accountable for the improvements we need to make by driving rigor across each of our North Star metrics and other key financials every day, every month, every quarter. We'll always strive to be the best rental car company we can be for our customers. But as you've heard, this work is more than that. It's about building on our foundation to create a truly diversified value-creating platform that gives our customers more and positions Hertz to thrive across the full spectrum of mobility. Understanding our customers and evolving to meet their needs is in our DNA. It's driven our success for the past 100 years and it's how Hertz will become more than a rental car company for the next 100. Our philosophy is simple. The best way for Hertz to be part of the future is to be in the service of it. The work we're doing to transform this company is deepening our skills and capabilities across all aspects of our business and giving us a foundation few others have. So while the future of mobility continues to evolve and AVs aren't yet ready for mass deployment, we're building the infrastructure and talent today for when they are, whether it's how our people buy or ride in cars or how the cars themselves change will play a key role. With that, let's open it up for questions. Back to you, operator.

Our first question today comes from the line of Chris Woronka from Deutsche Bank.

Gil, you've talked -- and this is back in the prepared comments, you talked about kind of becoming this -- I think you said value-creating mobility platform. Can you maybe unpack a little bit for us what that kind of means in practice and what the platform includes and maybe how, I guess, in your mind, creates value beyond the traditional and core rental business?

Yes. Sure, Chris. Yes, thanks for the question. I guess, I would start just by saying, historically, we've subordinated everything to our rental car business, and we see additional growth and value creation well beyond that. So as I -- maybe I unpack some of that, I'll start with the rental car piece first and just reemphasize, this is our core business. It is job one for us to rebuild that core rental car business. We're making progress. I hope you're seeing that in the numbers, but we got a lot of work to do. So we're not going to be distracted from that is the key message, and we're going to remain focused, but we're far more than a rental car company. So the other pieces that I touched on there, the car sales, service, and mobility, maybe just pulling that back a little bit. The car sales, first of all, the strategy we deployed, the end-to-end buy right, hold right, sell right strategy. That really sets us up well for this, especially with the fleet rotation kind of being in the rearview mirror. And of course, we got an iconic trusted brand. So the way we look at it is we're trading large volume of cars annually, especially as we shorten the hold periods, that volume will increase even further. So we got -- we've also got a pipeline of discounted supply of vehicles. So as I said it earlier, we kind of have used car factories the way I visualize it. So we're producing well-maintained, low mileage, and I'd just add one owner cars with a natural footprint that puts us in the top 5 used car dealerships in the country. So we have scale and we got ongoing supply. We also take trades on vehicles. We…

Okay. I appreciate all the details there, Gil. Very helpful. As a follow-up, I think we understand the gist of the strategy that's now well underway, which is rightsized fleet, newer cars, very high utilization. I think one of the things that maybe comes with that slightly smaller vehicle size, smaller purchase price, maybe less maintenance, et cetera. But the question is, are the economics on that -- on those, I'm going to call it, smaller vehicle footprint. Are the economics so much better because you would appear to be giving up a little bit of RPD and pricing on an absolute basis. And I'm curious as to whether that's just the customer mix or utilization, maybe it's rideshare or new accounts, whether it's corporate or leisure. Maybe you can just kind of give us a little tour of like how customer mix and things like that and maintenance and operating expenses are, I guess, accretive from smaller vehicles.

Yes. No, it's well said. I think a couple of things. First, I would say on the mix side, I mean there are some RPD headwinds, as you noted. But the way we look at mix is that it's dynamic. So ultimately, we're trying to optimize and align our car class mix around customer demand, what are the customers booking, their willingness to pay and -- for that class, and then the car class unit economics and doing that at a market level, really. So when we think about our model year '26 buys in particular, I'll back up. Our model year '25 buys, to some degree, what was available in the market, coupled with our strategy to rotate and refresh the fleet, right, all that led to a fleet mix that was certainly a big tailwind for us on the macroeconomics of fleet, which is the biggest economic lever we have. But as we think about model year '26 and the availability that we're seeing, that gives us the ability to further improve in this area and get it more dialed in at a market level. So -- and then I think just to touch on model year '26s while I'm talking about it, the buys, as I mentioned, have really come in at the price and volume targets we were seeking, which keeps our DPU well below the North Star target we've been managing to. But it also unlocks our ability to sell off our model year '25 fleet. And as I mentioned, roll into our shorter hold strategy. And that helps us for the unit economics you mentioned, Chris, whether it's maintenance expenses or even our ability to sell easier into the retail side. But the reality is we're really working hard to change our paradigm in the sense of beginning with the end in mind. So when we're buying cars, we're selling them. We're really selling them in mind. So we've got the selling side in mind and trying to develop a real car dealership mindset.

Your next question comes from the line of Chris Stathoulopoulos from Susquehanna International Group.

On the outlook for the sub-300 DPU for next year, I want to understand the moving pieces here. So it sounds like this vehicle recall is perhaps going to spill into early part of next year. The '26 vehicle purchases seem to be largely in place. And so what other work needs to be done, I guess, with respect to mix and mileage to confidently secure that sub-300 number?

Yes. I mean I'll start, Scott, you feel free to jump in. But I think the broader strategy that we've talked about, the end-to-end fleet strategy, buy right, hold right, sell right, that works in any environment for us, right? I mean you think about where we were 1.5 years, 2 years ago as we were really -- I mean, we had fierce headwinds on the fleet itself. And we -- through the fleet rotation, we've turned those around into tailwinds now with the model year '26s and the buys, again, the price and volume that we've seen, that helps us continue that model. In fact, it gets us to the short hold now with the volumes that really perpetuate our ability to hit our North Star DPU targets.

Yes. No, that's right, Gil. I think Chris, good to see you. Yes, I think, look, what we're looking at today is a very similar platform in '26 we saw in '25. We expect generally stable residuals. We have good pricing on '26. So everything we're seeing and also the sort of channel management of how we dispose of vehicles will influence DPU. And one other point is that while this also even excludes the fact that our F&I revenue doesn't even hit DPU. It hits revenue. So we think we still have a good bit of benefit coming from the Hertz car sales that will benefit DPU, but ultimately impact revenue as well. So we're pretty bullish on the channels and how it affects DPU, but also total EBITDA.

Okay. Great. And then, Scott, so I appreciate the color on the composition of the fleet for next year. So as I understand it on the airport side, GDP like off-airport, mid-to-high single digits, mobility 10 to 20. It sounds like you feel where you have the tactics in place to sustainably hit this sub-300. There are several efforts out there with respect to pricing utilization, customer satisfaction that Sandeep outlined that I'm guessing should result in lower DOE. So let's call that low single-digit growth. So is that all of these here, this fleet outlook, this sub DPU? Is it fair to think of those as, I guess, the algo going forward when we think about Hertz and I guess, it's pivoting towards this more of a sort of car sales, digital channel sort of focused platform?

Yes, I'll start. I'm sure Sandeep and Gil want to chime in, too. I think it's a good initial view of the base platform, which is something we've tried to articulate in the call. The base rental car business, yes, DPU-driven DOE per day, RPD, RPU, those sort of historical metrics. Now I think over time, you'll see that get influenced by things that Gil referenced in the first question around some of the services and some of the things that are outside the traditional rental car and even some of the mobility things that we do today that we might do tomorrow. So obviously, our ability to sort of tell that story with additional metrics, additional color commentary might change over time. But I do think, yes, the base rental car business in the near term will be influenced by those things you mentioned. And we tried to outline that a little bit in our script that obviously, we hope to see organic and industry-supported RPD, RPU growth. We're going to drive some scale and efficiencies to get DOE per day benefits. We think the fleet setup is good for DPU. So all of those are foundational. But over time, I think you'll see a few more tangents start to hit.

Your next question comes from the line of Ian Zaffino from Oppenheimer & Company.

I was just wondering if you could maybe just give us a little bit of color on just the quarter in general as far as what have you seen from international inbounds or corporate? And also maybe any markets that have been particularly strong or particularly weak? I know you referenced the government shutdown. Was that specifically D.C. area or anything else going on there?

And Ian, this is Sandeep here. Just for clarification, you're asking about Q4?

I was -- actually 3 and 4, if you can. So what you've seen and what kind of look -- yes, look at for going forward. Yes.

Awesome. Great. Thank you. So yes -- so overall starting, I think, high level, there was a substantial improvement from a demand profile in Q3 over -- when compared to Q2 on a year-over-year basis, right? When you look at overall airport demand, airport demand was largely, I'd say, slightly negative from Feb all the way through June this year. And then July onwards, it's been positive. So there's been an uptick both on the leisure side of the business in Q3 as well as on the corporate side of the business. And on -- let me first touch upon the corporate side of the business. There's been a couple of points of improvement when we talk about Q3 over Q4. And I'd say even more of an improvement sequentially within the quarter when you look at August and September, but it was still in negative territory when we talk about corporate. Now that's turned positive in October as we moved into Q4. So positive trends on the corporate side. Inbound had basically -- it was down double digits when you look at Q2, June -- May and June, right? We know some of the impact that had happened earlier on in the year. And a lot of that reduction was from EMEA as well as Australia and New Zealand. What we've seen since then is basically a couple of points of improvement again in inbound demand through summer and improvement going into October as well. But inbound is still down, I'd say, low single digits as such on a year-over-year basis. And then finally, we come to the government side of the business. So that was down substantially in Q2, improved a bit in Q3. Since the start of November, given everything around the federal government, we've seen that part of the business come down significantly in November. But again, we believe that in due course, that will be resolved. But right now, we see impact of that in November. Overall, when I pull up and I ask the question, okay, what does that mean for us? I think Q3 was substantially better from a demand profile perspective relative to Q2, and that was represented in the pricing environment that we had seen at that point in time. As we stepped into Q4 and looked at October, further improvement on the demand profile and I would say, a pretty solid pricing environment as well. So that's the way things have shaped out so far.

Okay. And then just maybe as a follow-up, can you talk about the strategy of -- as you go more off-prem, is that insurance replacement? Is that other? How do we think about maybe the competitive dynamics there? And what you kind of expect as far as metrics, whether vis-a-vis what they would look like on-prem versus off-prem?

Yes. I'll jump in and then, Sandeep, you can add a lot more color. At least the way we look at it, look, it's a really big market. It's more less cyclic than the airports. We're in the space. We have the footprint and the opportunities are both B2C and B2B opportunities there, including retail.

Yes, it's -- to be transparent, that was a less mature part of our business in terms of how we handle that part of the business. I'd say from a demand generation perspective as well as from how we kind of operated that part of the business. And we've been working on improving our ability to generate demand there. There's been improvement on the replacement side of the business, but also, in general, a greater demand coming from direct retail customers as well as from our partnership business. So I'd say, overall, the -- there's a commercial engine that's working on growing greater durable demand for Hertz as a brand overall. And that powers both airport as well as off-airport business.

Your next question comes from the line of Stephanie Moore from Jefferies.

Great. I wanted to touch on the early -- kind of early view on 2026, particularly the margin commentary. Very helpful to have the range that you provided. But given you guys have made tremendous steps forward in your own execution, it does remain a pretty volatile underlying market in general. Maybe just talk about what we would need to see to either hit the high end of that margin range or on the other side, if it ended up coming at the lower end of the range? And how do you kind of balance between actions that are more within your control and then again, the uncertainty of an underlying environment?

Stephanie, this is Scott. I'll start. Yes, I think there's a few things there. One, obviously, this is just a first indication of how we're kind of viewing '26. I think some of the details are still to be played out through our internal budget process and plus through as the fourth quarter starts to materialize, giving us a better foundational view for '26. But look, I think there's a few things that we impacted a little bit in some of my comments, but the plan is to generate a little bit of scale in the right way, as I mentioned, less so on airport and more so off-airport and mobility. We think those businesses have a lot of room to grow. So I think as Sandeep talked about some of the maturity we have from a revenue management perspective and that scale will generate a little bit of DOE benefit with continued process efficiency. Like I think those alone, I think, are sort of the foundational components. I think we're cautiously optimistic, too, about the benefit of sort of DPU and the distribution channel, specifically Hertz car sales, which could drive further DPU benefit and/or revenue benefit. So I think as we sort of think about the boundaries of that, I think the upside, obviously, there's additional sort of industry movement on sort of pricing that gives potential upside. But putting some of that to the side, internally, we think it's our ability to ramp up the sort of percentage of flow-through of car sales through our Hertz car sales. Today, we're sort of 20%, 25% of cars through that side. Our ability to get to north of 75%, 80-plus percent will be a big driver of value. So in our internal views, that's probably the component that really drives us to the top end or beyond.

Great. That's very helpful. And then I just wanted to follow up to your point on the incremental growth for next year. Could you maybe talk about how much net fleet CapEx you would expect to meet those plans? And then secondly, as you're thinking about this overall net fleet itself, maybe talk a little bit about how the 2026 purchases are shaping up and how we should think about in terms of the fleet mix for 2026 versus 2025?

Yes. Okay, Stephanie, I'll start. I'm sure Gil want to chime in, too. But yes, there will be a CapEx to the growth, probably in the, I'll call it, in the $100 million, $150 million range. The specific number will sort of depend on a number of factors. including vehicle type program versus risk, a number of other things, but probably in that range. And yes, I think you'll probably see us -- and Gil mentioned this, too, the fleet plan and our fleet mix in any given year is dependent on a large number of factors. But I think we'll probably -- we have an opportunity next year to probably look at a shift into some slightly larger vehicles, which we think can play out in a number of geographies for us. But I don't think you're going to see a dramatic shift in our fleet plan, but we have an opportunity to grab some vehicles that we think will be fruitful for us overall. But I think I mentioned, I think, in my script, that we're probably 80% of the way, maybe even north of 80% of the way and line of sight to some good opportunistic buys in '26. So we feel good about where it sits today. So I don't know, Gil, do you want to add.

No, I mean that's a good summary. Thanks. All I would say is the volume of model year '26 has been there. We've locked up kind of our primary needs. But we also see spot buy opportunities as we come out throughout the year. We've already done several of those post our original round. So we've got -- we're in a -- and price as well has hit our target. So we are in a position to be far more selective than last year. And I think Scott said it, we'll end up with probably a larger, you call it, richer mix of vehicles than we currently have. But that's all aligned with what we're trying to achieve at a local market level. And I would also say that as, again, we're thinking about when we're buying cars selling them and have that dealership mindset. I would say some of the trim that normally we would default for just for cost purposes for lower cost vehicles, we're thinking more about the sales side of that and can we get paid for different trim packages, especially at a location level, all-wheel drive, 4-wheel drive probably being the most notable example, but there's a lot of trim packages that we're thinking more about on the sales side and what the residual value impacts are than just for cost. So I'll just say we keep refining that model. And then probably one other last thought. There are definitely more program cars available than I think we've seen over the last few years. So that gives us some additional flexibility with mix, especially seasonally when it's a little harder to hit the peaks with large SUVs and luxury vehicles. We've got more flexibility than we've had in the past through program cars to manage that.

Your next question comes from the line of Dan Levy from Barclays.

I wanted to ask about the plans to grow the fleet next year. And specifically in light of the comments in your deck that some of the underlying RPD pressure is still being driven by market pricing pressure. So question is, do you think that fleet levels are rightsized in the industry? Or is there excess fleet? And how do you think the market will absorb your plans to grow fleet? How can you ensure that you will have positive RPD when expanding your fleet next year?

Yes. Let me start. I know Sandeep has got thoughts and probably Scott as well. It's a good question, right? So I think Scott laid it out our view well in that you've got to look at this at a segment level because all segments are not created equal, right? And I think, again, airport, off-airport and mobility, off-airport mobility will grow at faster rates than GDP because we've got the ability from a demand generation to generate that and continue the momentum we're already seeing in those businesses. The airport piece of the equation, I think where most of the root of your question comes from, right, is we -- I mean, we view it more in terms of we can grow more or less at GDP. We're not -- I'll just say we're not after gaining market share here. But there is a natural growth now that we've done our fleet rotation and have our unit economics more in line with where they should be, that gives us the right to grow again in all three segments. But we're going to be very disciplined in our approach here.

Yes. And the only thing I'll add here is basically even at the airports, I think if I look at the overall pricing environment from the start of the year until where we're sitting here right now, I think that pricing environment in -- especially in Q3 and then as we look so far what we've seen in Q4 is much improved, right? And I'm talking about just the overall industry backward looking, it's much improved. And then the slate of commercial initiatives that we had outlined there's momentum there, and you've seen the impact of that in -- at the tail end of Q3. And so I expect that to take a further foothold in the coming quarters and have an impact in 2026.

Okay. Great. As a follow-up, I wanted to just ask about the utilization in the quarter. And maybe you can just unpack, and I see the commentary here in the deck, but it was -- it seems like close to a quarterly record. Just how sustainable is that? And what type of utilization can we expect into next year?

Yes. No, great question. I see we've been building momentum with utilization over the last several quarters. And I attribute it principally to our operational processes are starting to get some real traction to eliminate out-of-service vehicles and idle time in general, along with the commercial team has done a great job with better demand generation. It all starts with demand generation, but we're starting to sweat our assets. And as you've seen, I think we made some big leaps here. I think there's more room to run candidly, albeit the spike in the recalls create a headwind for us in the short run. The fourth quarter is even more of a headwind than we saw in the third quarter. But I want to say we'll never be satisfied with our performance in this area. We're just the team's wired for continuous improvement. And I think the other big item aside from the kind of operational processes is -- plays into how we're selling cars because traditionally, -- and Sandeep talked about total utilization, which is really the way we look at it internally. It's not just operational, it's total utilization because we own those vehicles. The big difference being the inventory we have that is for sale for cars that take the turnaround times there have been very long. So we've process engineered that and some big improvements, which you see in the quarter on total you. But ultimately, as we sell digitally and we can continue to operate vehicles to the point of sale without taking them out of service for a month or 2 to sell, that creates tremendous opportunities for total utilization. So that's really our focus and strategy.

And this concludes the Hertz Global Holdings Third Quarter 2025 Earnings Conference Call. Thank you for your participation.