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Hertz Global Holdings, Reports Second Quarter 2016 Financial Results

Adjusted corporate earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter 2016 were $184 million versus $246 million in the same period last year, a decline of $62 million. The Company noted that it recorded $20 million of unanticipated net charges in International Rental Car (RAC) in the second quarter 2016, largely resulting from additional insurance-related expenses due to adverse experience in historical cases in the United Kingdom. These unexpected charges had an unfavorable impact to the Company's overall results for the quarter, including adjusted corporate EBITDA, and negatively impacted adjusted earnings per share (EPS) by approximately $0.15.

"Significant work was accomplished this quarter as part of our three-to-five year margin improvement plan," said John Tague, Hertz Global Holdings President and Chief Executive Officer. "While still in the first year of the plan, we completed a number of strategic actions, improved our balance sheet, and made progress on technology development, all while reducing our cost base and achieving substantial improvements in customer satisfaction. These accomplishments are the result of the dedication and commitment of our employees all across our operation.

"In the U.S., pricing improved significantly throughout the quarter, and we see positive pricing momentum continuing into the third quarter."

OPERATIONAL AND BUSINESS HIGHLIGHTS

The company continues to make progress in the first year of the margin improvement plan it announced in November 2015. Second quarter 2016 operational and business highlights include:

  • Year-over-year worldwide customer satisfaction improved for the Hertz, Dollar and Thrifty brands by more than 4 points for the second quarter 2016 and nearly 5 points for the first half 2016, continuing a trend from 2015. Customer satisfaction for the Hertz brand reached a record-level score on a worldwide basis for both the second quarter and year-to-date.
  • The Company achieved cost savings of approximately $100 million during the second quarter 2016 and is on pace to achieve its previously announced target of $350 million of full year 2016 cost savings. In addition to vehicle-related initiatives, consolidated unit costs for the company, defined as consolidated direct vehicle and operating and selling, general and administrative expenses per transaction day, declined $2.23, or 7%, versus the second quarter 2015.
  • Total average vehicles for the quarter, including Donlen leased vehicles, totaled 845,500, a 1% decline versus the second quarter 2015.
  • U.S. RAC vehicle utilization rose 700 basis points to 82%, driven primarily by a 6% increase in transaction days coupled with a 2% decline in average vehicles due to disciplined capacity and vehicle management.
  • U.S. RAC unit revenues, which is defined as total revenue per available car day, improved by 10 basis points year-over-year, driven primarily by the 700 basis point improvement in vehicle utilization compared to the same period last year.
  • The Company achieved a net non-vehicle debt to adjusted corporate EBITDA leverage ratio of 4.5 times at June 30, 2016. The Company noted that it remains on track to achieve its previously disclosed 2016 year-end leverage target of at or below 3.5 times.
  • The Company successfully completed the separation of its equipment rental business resulting in the receipt of approximately $2.0 billion of cash payments that were used to pay down a $2.1 billion term loan that was scheduled to mature in 2018.
  • The Company further strengthened its capital structure by successfully completing approximately $4.4 billion in financings during the quarter. There are no significant maturities of non-vehicle debt until 2019.
  • Non-vehicle cash interest expense is expected to decline by approximately $90 million on an annual basis, of which $45 million will be realized in the second half of 2016, related to the spin and refinancing activity.
  • The Company substantially transitioned its Firefly operations in the U.S. to its Thrifty brand as part of a U.S. market focus on its Hertz, Dollar and Thrifty brands.
  • During the second quarter, the Company made a strategic investment in Luxe, an app-based valet parking company.
  • At the end of the second quarter, the Company reached and launched one-year vehicle rental supply agreements with ride-sharing companies Uber and Lyft.

U.S. RENTAL CAR ("U.S. RAC") SUMMARY


U.S. RAC(1)

Three Months Ended
June 30,


Percent
Inc/(Dec)


($ in millions, except where noted)

2016


2015



Total Revenues

$

1,584



$

1,615



(2)

%


Depreciation of revenue earning vehicles and lease charges, net

$

417



$

380



10

%


Income (loss) from continuing operations before income taxes

$

104



$

153



(32)

%









Adjusted pre-tax income (loss)

$

143



$

195



(27)

%


Adjusted pre-tax income margin

9

%


12

%


(304)


bps








Adjusted Corporate EBITDA

$

168



$

224



(25)

%


Adjusted Corporate EBITDA margin

11

%


14

%


(326)


bps








Average vehicles

500,000



511,700



(2)

%


Transaction days (in thousands)

37,190



34,977



6

%


Total RPD (in whole dollars)

$

42.11



$

45.80



(8)

%


Revenue per available car day (in whole dollars)

$

34.42



$

34.40



%


Net depreciation per unit per month (in whole dollars)

$

278



$

248



12

%


Total U.S. RAC revenues were $1.6 billion in second quarter 2016, a decrease of 2%, versus the same period last year. Transaction days increased by 6% while pricing, or Total Revenue Per Transaction Day (Total RPD), decreased by 8%. The Company noted that the impact of transaction days counting methodology related to the integration of Dollar and Thrifty to the Hertz counter system and non-rental related declines in areas such as fuel-related ancillary revenue had an approximately 180 basis point unfavorable impact on pricing year over year. The Company saw meaningful sequential improvements in its pricing throughout the second quarter, building from a low point established in the first quarter 2016. Second quarter 2016 adjusted corporate EBITDA for U.S. RAC was $168 million, or a margin of 11%, which reflects a $56 million decline versus the same period last year.

INTERNATIONAL RENTAL CAR ("INTERNATIONAL RAC") SUMMARY


International RAC(1)

Three Months Ended
June 30,


Percent
Inc/(Dec)


($ in millions, except where noted)

2016


2015



Total Revenues

$

540



$

556



(3)

%


Depreciation of revenue earning vehicles and lease charges, net

$

98



$

101



(3)

%


Income (loss) from continuing operations before income taxes

$

29



$

36



(19)

%









Adjusted pre-tax income (loss)

$

34



$

45



(24)

%


Adjusted pre-tax income margin

6

%


8

%


(179)


bps








Adjusted Corporate EBITDA

$

42



$

54



(22)

%


Adjusted Corporate EBITDA margin

8

%


10

%


(193)


bps








Average vehicles

178,600



173,700



3

%


Transaction days (in thousands)

12,511



12,523



%


Total RPD (in whole dollars)

$

42.04



$

42.72



(2)

%


Revenue per available car day (in whole dollars)

$

32.36



$

33.85



(4)

%


Net depreciation per unit per month (in whole dollars)

$

179



$

186



(4)

%


The Company's International RAC segment continues to perform well despite lower demand than anticipated during the quarter due to security concerns based on the recent attacks in France, the Company's largest European market. Total International RAC revenues were $540 million in second quarter 2016, a decrease of 3% from second quarter 2015. Excluding a $6 million unfavorable foreign currency impact, revenues decreased 2% driven by a 2% decrease in Total RPD, on a constant currency basis, and flat transaction days.

Second quarter 2016 adjusted corporate EBITDA of $42 million was a $12 million decrease versus the same period last year. The Company noted that second quarter 2016 results include $20 million in unanticipated charges which were largely driven by an unfavorable adjustment to the segment's insurance reserves due to adverse developments on historical cases. Excluding these charges, the Company's International RAC segment would have experienced year over year adjusted corporate EBITDA and margin expansion in the second quarter 2016.

ALL OTHER OPERATIONS


All Other Operations(1)

Three Months Ended
June 30,


Percent
Inc/(Dec)


($ in millions)

2016


2015



Total Revenues

$

146



$

146



%









Adjusted pre-tax income (loss)

$

17



$

17



%


Adjusted pre-tax income margin

12

%


12

%



bps








Adjusted Corporate EBITDA

$

16



$

15



7

%


Adjusted Corporate EBITDA margin

11

%


10

%


69


bps








Average vehicles - Donlen

166,900



165,600



1

%


All Other Operations, which is primarily comprised of the Company's Donlen leasing operations, reported flat year-over-year total revenues for second quarter 2016 despite continued weakness in oil and gas sector accounts. Adjusted corporate EBITDA for the All Other Operations segment was $16 million in second quarter 2016, a 7% increase over the prior-year period and the segment recorded a 69 basis point margin increase year-over-year to 11%.

SUCCESSFUL SEPARATION OF EQUIPMENT RENTAL BUSINESS

On June 30, 2016, the Company successfully completed the separation of its equipment rental business resulting in $2.0 billion of cash payments to the Company which were used to pay down a portion of the Company's non-vehicle related debt.

Following the separation, the Company's outstanding share count is approximately 85 million. The Company trades on the New York Stock Exchange under the symbol "HTZ". The equipment rental business operates under the name Herc Holdings Inc. and trades on the New York Stock Exchange under the symbol "HRI".

The separation was structured as a reverse spin-off under which the vehicle rental business was contributed to the Company, the stock of which was then distributed as a dividend to stockholders of former Hertz Global Holdings, Inc. (for periods on or prior to June 30, 2016, "Old Hertz Holdings"). While the Company was the legal spinnee in the separation, the Company is the accounting successor to the pre-spin-off business. As a result, the equipment rental business and certain former parent entities of Old Hertz Holdings are presented as discontinued operations in this earnings release.

Unless noted otherwise, information presented in this earnings release pertains to Hertz Global's continuing operations.

HERTZ GLOBAL ESTABLISHES POST-SPIN GUIDANCE

With the separation of the equipment rental business complete, the Company has established the following full year 2016 guidance for the "new" Hertz Global:


Full Year 2016 Forecast

Adjusted Corporate EBITDA(2)

$850M

to

$950M

Non-vehicle capital expenditures, net

$125M

to

$150M

Non-vehicle cash interest expense

$280M

to

$290M

Cash income taxes

$100M

to

$125M

Free cash flow(2)

$500M

to

$600M

U.S. RAC net depreciation per unit per month(2)

$290

to

$300

U.S. RAC fleet capacity growth

(2.0)%

to

(3.0)%

U.S.RAC revenue growth

—%

to

(1.5)%

Adjusted earnings per share**(2)

$2.75

to

$3.50

*Based on a weighted average of 85 million shares outstanding and a 37% effective tax rate




(1) Adjusted pre-tax income, adjusted pre-tax margin, adjusted corporate EBITDA, adjusted corporate EBITDA margin, adjusted net income, adjusted net income margin, adjusted earnings per share, total revenue per transaction day, revenue per available car day and net depreciation per unit per month are non-GAAP measures. See the accompanying Supplemental Schedules and Definitions for the reconciliations and definitions for each of these non-GAAP measures and the reason the Company's management believes that these measures provide useful information to investors.

(2) Because of the forward-looking nature of the Company's forecasts of Adjusted Corporate EBITDA, free cash flow, net depreciation per unit per month and adjusted earnings (loss) per share, specific quantifications of the amounts that would be required to reconcile a pre-tax income, operating cash flow and depreciation forecast are not available. The Company believes that there is a degree of volatility with respect to certain of the Company's GAAP measures, primarily related to fair value accounting for its financial assets (which includes the Company's derivative financial instruments), its depreciation of revenue earning vehicles, its income tax reporting, its operating cash flows and certain adjustments made to arrive at the relevant non-GAAP measures, which preclude the Company from providing accurate forecast of GAAP to non-GAAP reconciliations. Based on the above, the Company believes that providing estimates of the amounts that would be required to reconcile the range of the non-GAAP Adjusted Corporate EBITDA, free cash flow, net depreciation per unit per month and adjusted earnings (loss) per share would imply a degree of precision that would be confusing or misleading to investors for the reasons identified above.

RESULTS OF THE HERTZ CORPORATION

The GAAP and Non-GAAP profitability metrics for Hertz Global's operating subsidiary, The Hertz Corporation, are materially the same as those for Hertz Global.

EARNINGS WEBCAST INFORMATION

Hertz Global's second quarter 2016 live webcast discussion will be held on August 9, 2016, at 8:30 a.m. Eastern. The earnings release and related supplemental schedules containing the reconciliations of non-GAAP measures will be available on our website, IR.Hertz.com.

SELECTED FINANCIAL AND OPERATING DATA, SUPPLEMENTAL SCHEDULES AND DEFINITIONS

Following are tables that present selected financial and operating data of Hertz Global. Also included are Supplemental Schedules which are provided to present segment results and reconciliations of non-GAAP measures to their most comparable GAAP measure. Following the Supplemental Schedules, the Company provides definitions for terminology used throughout this press release. As described above, the financial information of the equipment rental business and certain parent legal entities that were not spun-off by Old Hertz Holdings are considered discontinued operations.

Unless noted otherwise, information presented in the following tables and supplemental schedules pertain to Hertz Global's continuing operations.

ABOUT HERTZ GLOBAL

Hertz Global operates the Hertz, Dollar and Thrifty vehicle rental brands in approximately 10,000 corporate and franchisee locations throughout North America, Europe, Latin America, Africa, the Middle East, Asia, Australia, and New Zealand. Hertz Global is one of the largest worldwide airport general use vehicle rental companies, and the Hertz brand is one of the most recognized in the world. Product and service initiatives such as Hertz Gold Plus Rewards, Carfirmations, Mobile Wi-Fi and unique vehicles offered through the Adrenaline, Dream, Green and Prestige Collections set Hertz Global apart from the competition. Additionally, Hertz Global owns the vehicle leasing and fleet management leader Donlen Corporation, operates the Hertz 24/7 hourly vehicle rental business in international markets and sells vehicles through its Rent2Buy program. For more information about Hertz Global, visit: www.hertz.com.

CAUTIONARY NOTE CONCERNING FORWARD LOOKING STATEMENTS

Certain statements contained in this release, and in related comments by the Company's management, include "forward-looking statements." Forward-looking statements include information concerning the Company's liquidity and its possible or assumed future results of operations, including descriptions of its business strategies. These statements often include words such as "believe," "expect," "project," "potential," "anticipate," "intend," "plan," "estimate," "seek," "will," "may," "would," "should," "could," "forecasts" or similar expressions. These statements are based on certain assumptions that the Company has made in light of its experience in the industry as well as its perceptions of historical trends, current conditions, expected future developments and other factors it believes are appropriate in these circumstances. The Company believes these judgments are reasonable, but you should understand that these statements are not guarantees of performance or results, and the Company's actual results could differ materially from those expressed in the forward-looking statements due to a variety of important factors, both positive and negative, that may be revised or supplemented in subsequent reports on Forms 10-K, 10-Q and 8-K filed or furnished to the Securities and Exchange Commission ("SEC"). Among other items, such factors could include: any claims, investigations or proceedings arising as a result of the restatement of our previously issued financial results; our ability to remediate the material weaknesses in our internal controls over financial reporting; levels of travel demand, particularly with respect to airline passenger traffic in the United States and in global markets; the effect of our separation of our vehicle and equipment rental businesses, any failure by Herc Holdings Inc. to comply with the agreements entered...


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