Hertz Global Q2 2026 Earnings Call Transcript

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Provided by Quartr
August 6, 2026

Key Takeaways

  • Positive Sentiment: Q2 revenue rose 10% to $2.4 billion despite a 1% smaller fleet, supported by record second-quarter RPD growth of 9%, RPU growth of 8%, and utilization improving to 79%.
  • Positive Sentiment: Adjusted corporate EBITDA increased $63 million year over year to $81 million, while the RPD-to-DOE spread expanded 17%; management expects Q3 EBITDA of $275 million–$325 million and full-year EBITDA of $225 million–$275 million.
  • Negative Sentiment: Elevated vehicle recalls remain a major headwind, affecting roughly 15,000 vehicles per month and reducing first-half EBITDA by more than $55 million, including a $30 million impact in Q2.
  • Positive Sentiment: Management expects fleet economics to improve as newer vehicles are rotated through higher-yielding retail channels, while used-vehicle values recovered in July; expanding franchising is also expected to support more capital-light earnings and deleveraging.
  • Negative Sentiment: Year-end liquidity guidance was reduced to $1.0 billion–$1.4 billion from roughly $1.5 billion, partly because ATM proceeds were removed from the forecast; Hertz still faces upcoming debt maturities, although it expects to pay the remaining $200 million December 2026 maturity in cash.
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Earnings Conference Call
Hertz Global Q2 2026
00:00 / 00:00

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Gil West
CEO at Hertz

Good morning, everyone, and thank you for joining us. I want to begin by saying thanks to the Hertz team. Quarter after quarter, their discipline and execution are what turn strategy into results. We are halfway through 2026, and it's been more than two years since I stepped into this role. In that time, I had the chance to get into the detail of every part of this business, the fleet, the operations, and the economics that drive them. What's become clear is that this transformation is about both fixing what wasn't working and building for what's next. We've done that under real pressure. Over these two years, we've navigated tariffs, vehicle recalls, inflation, partial government shutdown, elevated TSA wait lines, and storm disruptions on top of the normal volatility of the rental car industry. None of it has changed our approach.

Gil West
CEO at Hertz

We're staying focused on what we can control, our fleet, our cost, our revenue performance, and the customer experience we deliver. Through disciplined execution, we're building a financial footing strong enough to withstand whatever pressures today and tomorrow bring. We're both running our core rental business better and building a platform spanning rent-a-car, fleet, service, and mobility that diversifies and strengthens Hertz for the future. This quarter is more proof of that progress, where our disciplined execution is showing up in our results. Led by our continued commercial momentum, revenue was up [inaudible] year-over-year with a 1% smaller fleet and came in ahead of both consensus and our latest guidance. By continuing to sweat the assets and increasing total fleet utilization by 80 basis points to 79%, we achieved this despite elevated recalls compared to the year before.

Gil West
CEO at Hertz

This performance was driven by our strongest second quarter RPD on record, excluding the peak COVID year of 2022. RPD was up 9%, and RPU was up 8% versus last year. Coming in at $1,542, RPU exceeded our North Star target, and we saw sequential improvements in both throughout the quarter. Adjusted corporate EBITDA came in at $81 million, a $63 million year-over-year improvement and above our latest guidance, driven primarily by an even stronger RPD in June than we anticipated. We continue to execute on our annual DPU North Star target through our disciplined rotation strategy that is defined by our buy right, hold right, and sell right approach. At $302, DPU remains in line with target. However, we did experience three quarter-specific items that caused the total gain on sale to be lower than originally expected.

Gil West
CEO at Hertz

First, the seasonal decline was more pronounced than we anticipated as wholesale volume temporarily outpaced demand. Second, our disposition channels were not as optimal as we would like given the volume of cars we sold. Third, during the quarter, we altered the mix of vehicles and prioritized older and certain models. These dynamics temporarily drove down the proceeds from sale, resulting in a lower gain on sale. However, this didn't impact our go-forward view. The seasonally adjusted Manheim Used Vehicle Value Index increased 3.5% month-over-month in July, recovering from the declines experienced during the second quarter and remaining strong, up 6.1% year-over-year. The used car market is good, and we're set up well for it. At the end of Q2, our model year 25 and 26 units made up nearly 94% of our U.S. core fleet.

Gil West
CEO at Hertz

We believe we have an exceptionally healthy fleet. We expect DPU will benefit as we rotate out of those vehicles over the coming quarters. Turning to cost, total DOE per day increased slightly, primarily driven by costs that were both revenue related and were margin accretive, associated with stronger RPD performance. This brings me to a broader point. The North Star metrics have given our teams a steady compass over the last two years. As the business evolves, it's important to recognize that these metrics do not operate in isolation. As revenue grows, a portion of our DOE naturally grows alongside it. Many of those costs are tied to higher revenue and stronger profitability. As a result, we're also increasingly focused on the relationship between those metrics, and we expect our performance framework to evolve as our transformation continues.

Gil West
CEO at Hertz

While DOE was higher, our RPD to DOE per day spread improved by 17% year-over-year. It was our third consecutive quarter of year-over-year spread expansion. We remain extremely focused on managing core operating costs. The improvements we're seeing are the result of productivity initiatives encompassing people, processes, and technology. One of our biggest levers we have is labor productivity. Supported by Palantir, our new labor planning model aligns staffing with real-time demand, reducing overtime and third-party labor and improving workforce planning. We're also leveraging technology and AI-driven data insights to improve throughput and productivity across our operations to reduce our vehicle turnaround time. Additionally, we're making progress in leveraging our supply chain network, expanding part-out capabilities, strengthening collections recovery, and improving maintenance processes, all to drive greater productivity with existing resources while lowering unit costs.

Gil West
CEO at Hertz

Although these results demonstrate the progress we've made in strengthening the economics of the business, recalls remain a significant headwind. Recall volume was up 300% in Q2 from the year prior, impacting an average of 15,000 vehicles per month. Across the first half of 2026, recalls represented more than a $55 million EBITDA impact. We're pursuing regulatory, operational, and contractual solutions to address this issue. More importantly, our ability to deliver this level of performance despite that headwind reinforces our confidence in the path to our long-term targets. That said, while 2027 and $1 billion of adjusted corporate EBITDA are important milestones, they're not the final destination. As we've shared, we focused on something bigger. We are applying our commercial, operational, and fleet management capabilities across the four strategic areas of our platform to drive greater efficiency, create diversified growth engines, and strengthen the company for the future.

Gil West
CEO at Hertz

Our platform is the unlock to the next phase of value creation, de-leveraging the balance sheet, and growth. One of the greatest opportunities to grow is by more effectively leveraging the power of the Hertz brand. Hertz is an iconic, century-old brand recognized the world over. It's one of the most valuable assets with a strong reputation that we believe is under-monetized today. One way that we think we can use the power of our brand is in franchising. It is a strong asset-light, capital-efficient part of our business with attractive and predictable economics. It's not new either. Today, more than 25% of the Hertz-branded revenue is generated by franchises. However, we haven't grown it in years. It hasn't received the level of focus necessary to realize its full potential.

Gil West
CEO at Hertz

We're now changing that, and we're evaluating near-term opportunities across the global footprint through both white space expansion and conversion activity, and thinking strategically about whether Hertz should look more like our partners in the hotel industry. If our goal is to achieve higher quality earnings, stronger free cash flow conversion, more durable shareholder returns, and improved balance sheet, franchising is there. In the next area of our platform, fleet, we are building on our unique competitive advantage of one of the largest used car dealers in the country, enhancing the capabilities of our used car factory. We're continuing our journey of moving from primarily wholesale disposition towards more lucrative channels. We expect that expanding our ability to move additional car sales volume through these higher-yielding channels will have a significant effect on net DPU, and we're working to unlock those opportunities.

Gil West
CEO at Hertz

We're exploring how we build strategic relationships with the leading used car companies, creating more mutual value and structurally reducing our cost of sale, alongside new partnerships with best-in-class retailers. We also continue to make progress on our direct retail channel. Wins this quarter included growing direct retail sales volumes, reducing reconditioning costs, delivering strong F&I performance. In mobility, Oro is gaining momentum. For over a century, Hertz has mastered the ability to operate complex fleets reliably, efficiently, and at scale. Today, Oro is extending those capabilities to a new era of mobility, filling a critical gap in the industry's transition towards commercially operated, driver-led, and autonomous fleets. The capabilities we built, from acquisition and financing to efficient fleet management and maintenance, would be incredibly difficult and costly to replicate from scratch today.

Gil West
CEO at Hertz

We're putting those capabilities to work through Oro's driver-led business model, where we own, maintain, and operate vehicles on rideshare platforms. Oro is now active on the Uber platform in four markets: Atlanta, Los Angeles, San Francisco, and Northern New Jersey. We've expanded into these new offerings on the app, including Uber Black in New Jersey and Uber for Business in San Francisco and Los Angeles. Our drivers have logged more than six million miles to-date. This business validates our ability to deliver high-quality and turnkey fleet solutions safely and at scale, supporting an enhanced customer experience. At the same time, we're developing the operations, processes, systems, and infrastructure that directly translate to operating AVs at scale. Earlier this year, we announced our first AV partnership with Uber's robotaxi program, supporting Lucid vehicles equipped with Nuro autonomous technology.

Gil West
CEO at Hertz

We're on track to begin operations later this year in the San Francisco Bay Area. We continue to see encouraging traction as we scale this part of the business. Oro already has meaningful scale and momentum. Through these offerings and the existing rideshare rental business, we expected to generate more than $600 million in total revenue this year with the ability to grow dramatically over the next decade. Opportunities for expanding capabilities, new partnerships, and new avenues for value creation are emerging, and we're focusing our resources on unlocking that growth. This quarter is an exciting proof point in Hertz's transformation. We're making tangible progress across the business, and we're focused on execution and accelerating the improvements ahead of us. As I look at the quarter, there are four key takeaways I'd highlight. First, our core rental car business continues to improve, and our commercial momentum is strong.

Gil West
CEO at Hertz

The actions we’ve taken over the last two years are driving better unit economics, creating a clearer path to stronger margins, and potentially more than $1 billion of adjusted corporate EBITDA run rate in 2027 and beyond. Second, our fleet buy right, hold right, sell right strategy should continue to yield strong near-term results and solidify our ability to deliver net DPU below $300 per month. Third, our strategy to expand the franchise portion of the rental car business has the potential to accelerate that progress. We see it as a way to generate consistent earnings, strengthen free cash flow, unlock liquidity for growth initiatives, and ultimately create a more durable value for shareholders whilst also supporting de-leveraging. Finally, Oro may be new, but it is rapidly emerging as a meaningful growth platform.

Gil West
CEO at Hertz

We believe it will continue to scale in revenue this year across all of its business lines, and we have a plan in place that we think can reshape Hertz growth trajectory for years to come. The opportunities in front of us are significant. We’re encouraged by the momentum across the business and the opportunities ahead. Ultimately, results speak louder than words, and we’re focused on continuing to execute and demonstrating that progress quarter after quarter. With that, I’ll turn it over to Sandeep.

Sandeep Dube
EVP and Chief Commercial Officer at Hertz

Thanks, Gil, and good morning, everyone. In Q2, we delivered revenue of $2.4 billion, a 10% increase from the year before. RPU increased 8% from the prior year, even when factoring in elevated recalls. RPD increased 9% year-over-year, our highest second-quarter RPD per our records, excluding the peak COVID year of 2022. The result was even better in the U.S. U.S. airport car rental RPD increased 12% year-over-year. This was the second quarter in a row where we achieved double-digit year-over-year revenue growth globally, coupled with year-over-year RPU and RPD improvements in the mid- to high-single-digit percentage range. Let's detail our RPD improvement a bit. The majority of the improvement, roughly 6-7 percentage points, came from our commercial actions.

Sandeep Dube
EVP and Chief Commercial Officer at Hertz

Of the remainder, roughly 2-3 percentage points came from positive industry pricing, and roughly less than half a percentage point came from the World Cup. Our commercial strategy is gaining momentum based on the initiatives we have been executing over the last several quarters, and the results of which are now clearly evident. Each quarter, we are getting more value from the same levers we have discussed previously. Let me break those down. First, improving our customer experience. Our pursuit of a more consistent, convenient, and caring customer experience is tangible across each area of the business as teams work together to develop more precise alignment between demand and available supply, enhance customer communication throughout the entire rental journey, expand the capabilities of our mobile app, and more. One aspect to highlight is service recovery.

Sandeep Dube
EVP and Chief Commercial Officer at Hertz

Even when we fall short of customer expectations, we have significantly strengthened our service recovery capabilities over the past year. Overall, customers who go through our service recovery process have a positive Net Promoter Score. Second, generating greater durable demand from higher-margin channels. We continue to invest in the brand to drive further direct channel growth while also making meaningful gains with corporate and government customers. Partnerships remain a key priority, and Q2 wins include our strongest year-over-year performance in the AAA partnership in more than four years. At the same time, we continue to drive consistent growth in our off-airport and rideshare rental businesses. Third, improving our pricing tactics and strategies.

Sandeep Dube
EVP and Chief Commercial Officer at Hertz

Our key commercial objective is to drive positive RPD for comparable asset classes, so far, the actions we have taken to implement and refine our pricing matrix continue to bring greater precision to the way we price demand, playing a part in this quarter's strong RPD results. Fourth, improved monetization of our higher RPU assets. With our new fleet management tools in place, our team is better equipped to get the right vehicle in the right location at the right time, supporting more refined pricing. Fifth, better value-added product sales. We have grown sales of our value-added products by improving both conversion and pricing while providing customers with greater clarity and consistency in their experience. Finally, local-level profitability and optimization. We continue to manage our business with increased granularity, enabling greater profitability in each of our markets.

Sandeep Dube
EVP and Chief Commercial Officer at Hertz

Taken together, these actions are driving stronger demand for our brands and creating conditions for more durable pricing performance, enabling us to achieve a primary commercial objective, which is driving RPD gains beyond the industry pricing environment. Talking about the industry pricing environment, it has been quite constructive. Some context might be helpful here. Over the past few years, industry costs, including fleet financing, depreciation, and operating expenses, moved materially higher, while pricing did not fully keep pace. However, more recently, the industry has just started recapturing ground lost over many years rather than simply keeping pace with current inflation. In the last three quarters, we started to see the beginning of a reversal of the pricing declines that characterized much of the post-COVID period.

Sandeep Dube
EVP and Chief Commercial Officer at Hertz

Before the industry reaches a more mature level of profitability, where pricing primarily offsets ongoing cost inflation, there remains an opportunity for pricing to continue normalizing towards levels that better reflect the economics of the business. In Q2, consumer demand and willingness to pay was greater than what TSA numbers would imply, that, combined with a more disciplined industry supply environment, supported positive pricing trends. Early Q3 results indicate that we are on track to deliver meaningful RPD gains again. In July, we hit a major achievement, 200 consecutive days of positive year-over-year RPD, a milestone which reinforces that our growing commercial acumen, coupled with consistent execution, is translating into consistent commercial performance. Looking ahead at the rest of the quarter, the industry pricing environment, as we sit here today, continues to be supportive. Demand for our brands is healthy.

Sandeep Dube
EVP and Chief Commercial Officer at Hertz

Our fleet mix is expected to be a positive factor going forward. Most importantly, we have a long list of meaningful initiatives slated to come live in the next few quarters, which will be a rising tide for our customer experience, our demand generation, and our pricing capabilities, thereby improving our ability to continue delivering strong RPD outcomes, enabling us to better control our destiny. In summary, our commercial strategy is translating into strong revenue performance. Importantly, those results are driven by deliberate actions. We are seeing clear proof points that these actions are gaining traction, and with a strong pipeline of initiatives in front of us, we expect commercial performance to be a continued tailwind for the business. Given the positive trajectory for full year 2026, we now expect RPU to trend above our North Star target of $1,500.

Sandeep Dube
EVP and Chief Commercial Officer at Hertz

Now, I'll hand it over to Scott to walk through our financial performance.

Scott Haralson
CFO at Hertz

Thanks, Sandeep. Good morning, everyone, and thanks for joining. Before I get into the financial results, I'd like to step back for a moment. In any transformation, it's easy to become consumed by the next quarter, the next milestone, or the next challenge, and lose sight of how much has already changed. While we're not declaring victory today, we are seeing a business that is executing with increasing consistency operationally, commercially, and financially. Every successful transformation reaches an inflection point where the conversation begins to change. Early on, the question is, can this company recover? Eventually, through consistent and disciplined execution, the question becomes: How do they do that? We believe that shift comes through consistent execution over time. We believe we are doing that, and this quarter represents another meaningful step in that journey.

Scott Haralson
CFO at Hertz

Not because of any one single metric, but because the underlying economics of the business continue to improve. We recognize that it's hard for the market to fully reflect the progress we believe is occurring inside the business. That's understandable. We recognize that investors remain focused on our capital structure and upcoming debt maturities. That's appropriate. Strengthening the balance sheet remains one of our highest priorities. What gives us confidence is that the business supporting our capital structure today is fundamentally different from the business of two years ago. We have continued to improve our fleet, the customer experience, and operating efficiency, which has resulted in better operating performance and strengthened free cash flow. Plus, we continue to create additional strategic options. Our focus remains on continuing that progress while thoughtfully addressing our capital structure in a disciplined manner.

Scott Haralson
CFO at Hertz

While this quarter's results are a really good outcome, and they are important, we believe the more significant story is the trajectory of the business and the strategic initiatives that are beginning to reshape our earnings profile. Gil outlined the takeaways for where we are today. I'd like to spend a minute discussing one on his list, and that's franchising. I believe it represents one of the most underappreciated value creation opportunities within our business. I believe that our business today is right for an increasing level of franchising. It's already a consistent contributor to our adjusted corporate EBITDA results, and we haven't capitalized on this side of the business in the way that we should and will. Over the last two years, much of our work has been focused on transforming the operations.

Scott Haralson
CFO at Hertz

Increasingly, the next phase of our strategy is about transforming the quality of our earnings. Franchising has the potential to accelerate that evolution through a more capital-light model that enhances margins, free cash flow generation, returns on invested capital, and financial flexibility. It could give us more flexibility to allocate capital toward higher return opportunities across the platform, while also providing meaningful de-leveraging benefits. We have already started down this path and will likely start to see evidence of this progression in the near future. Taken together, the near-term benefits of a more focused franchise strategy, plus the opportunities in our fleet business for retail car sales, as well as the longer-term potential in Oro, on top of a consistently improving rental car business, gives us a broader set of levers to improve margins, strengthen returns on capital, and enhance how Hertz creates value over time.

Scott Haralson
CFO at Hertz

We recognize there is significant work ahead; we have been building towards this for some time, we expect to share more as these initiatives progress. With that, let me pivot back to the Q2 results. I’ll also cover liquidity and insights into Q3, the full year, and a bit on 2027. For Q2, we generated revenue of $2.4 billion, up 10% year-over-year, notably with a 1% smaller fleet. This was driven by strong pricing performance with RPD up 9% year-over-year, and total fleet utilization was 79%, up 80 basis points, even with a nearly 200 basis point headwind on utilization due to continued elevated recalls. This utilization increase allowed us to keep transaction days at prior year levels, even with less available vehicles for rent. Despite elevated recalls, RPU surpassed our expectations, reaching $1,542, up 8% year-over-year.

Scott Haralson
CFO at Hertz

GAAP net income for the quarter was $64 million, and diluted GAAP EPS was $0.05, with an adjusted net loss of $47 million. GAAP net income benefited from gains on the sale of real estate locations on which we completed sale-leaseback transactions, as well as revaluations of other exchangeable notes and warrants issued in prior years. Adjusted corporate EBITDA was $81 million, representing a $63 million year-over-year improvement and coming in at the top of our most recent guidance. Adjusted corporate EBITDA margin improved by 260 basis points to 3.4%, from 0.8% in the second quarter of last year and in line with our guidance expectations. These results included a total impact of recalls of approximately $55 million on revenue and $30 million in EBITDA. Despite this, we still produced a strong year-over-year improvement in EBITDA.

Scott Haralson
CFO at Hertz

Turning to cost, adjusted DOE per transaction day was $37.49, slightly higher than our expectations and higher year-over-year, primarily due to higher revenue-related variable cost and higher expenses related to sale-leaseback transactions. When normalizing for these factors and the day's impact of recalls, adjusted DOE per day improved approximately 2% year-over-year. While these dynamics can make DOE appear less favorable in isolation, a large portion is tied to revenue growth and our adjusted corporate EBITDA accretive. In fact, approximately 25% of our DOE cost structure is influenced by RPD movements, including airport facility costs or concessions, commissions, credit card processing fees, and fuel-related expenses. Because of this, the spread between RPD and DOE per day is a key measure of the value we create from each vehicle day and the effectiveness of our commercial and operational execution.

Scott Haralson
CFO at Hertz

This quarter, our RPD to DOE per day spread was approximately $24.36, up 17% year-over-year, and it's the third consecutive quarter that spread has increased. SG&A increased slightly year-over-year, driven primarily by investments in sales and advertising, which contributed to this quarter's strong RPD growth. As a percentage of revenue, SG&A declined from 11.3% to 10.8%, reflecting improved operating leverage. Gross depreciation per unit per month was $298 during the quarter. Net DPU was $302, reflecting an incremental $4 per unit per month driven by the loss on sale of a concentrated mix of older vehicles and pressure on the wholesale market dynamics that have since normalized. With that said, we've seen the overall used car index and rental car index both show positive signs of stability. And year-to-date, gross DPU has been fairly stable.

Scott Haralson
CFO at Hertz

We now have our youngest rental car fleet in over a dozen years at just under nine months and believe those vehicles are well-positioned for good economics over their life cycle. Our 2027 fleet acquisitions have been picking up steam, and while total volumes are still an unknown at this point, what we have secured to date are at similar economics to the 2026 model year vehicles. Our young fleet gives us a lot of flexibility to be picky about model year 2027 vehicles and consider growth, given we can extend the life of vehicles a little further or sell during peak periods to monetize gains. This could be a useful lever going into 2027. Turning to liquidity, we ended the quarter with $984 million of liquidity, which includes cash and cash equivalents and the available capacity under our revolving credit facility.

Scott Haralson
CFO at Hertz

This was in line with guidance of just under $1 billion. In June, we completed an exchangeable senior first lien secured notes offering for a total of $350 million, which used capacity created through expiring revolving commitments as well as from term loan amortization. In addition, we added another $30 million of notes offering in July as part of the exercising of the greenshoe, which would bring our pro forma liquidity post-transaction to slightly over $1 billion. As mentioned on prior calls, we had anticipated refinancing the first lien capacity that was being freed up from the reduction in revolver capacity at the end of June. With that in mind, let's discuss guidance. For liquidity, we expect to end the year between $1.0 billion and $1.4 billion, with sufficient levers to fund strategic growth initiatives.

Scott Haralson
CFO at Hertz

This contemplates some amount of free cash flow generation in the back half of the year as we enter the peak Q3 period, balanced with a somewhat off-peak Q4 period. The broad range contemplates the potential for strategic transactions, including franchise-related agreements that could take place during the back end of the year. It also includes the payment of the remaining $200 million subportion of our December 2026 maturity in cash. This is also slightly lower than our previous guidance due to the fact that we removed proceeds from the ATM program from our forecast. However, it will remain available should that become a viable option in the future. An additional potential benefit to 2027 liquidity, we're also evaluating the seasonality of our fleet moves.

Scott Haralson
CFO at Hertz

As we reflect on what we're seeing throughout 2026 across the supply, demand, rental car pricing, and used vehicle pricing, we're taking a fresh look at the timing of our fleet and investments and how we manage fleet levels throughout the year, particularly as it pertains to working capital. Recognizing that decisions around fleet timing and seasonality can have a nine-figure impact to the timing of cash flows in the year. This analysis balances the fact that peak demand for rental cars overlaps heavily with the peak periods to sell vehicles. For profitability, we expect Q3 adjusted corporate EBITDA production to be between $275 million and $325 million, with positive earnings per share for the quarter. Transaction days should be up approximately 1% year-over-year, and net DPU is expected to be in the $285-$295 per unit per month range.

Scott Haralson
CFO at Hertz

For the full year, we expect EBITDA to be in the $225 million-$275 million range, with net DPU at approximately $300 and transaction days up approximately 2% year-over-year. For 2027, we continue to target $1 billion of adjusted corporate EBITDA. We will need some scale for that number to be within a reasonable reach. At a minimum, we do expect that in 2027, we will finally reach full-year net income profitability, and we will be free cash flow positive for the full year. We expect our year-end cash balance, together with our projected 2027 profitability, to provide the liquidity necessary to support some modest growth in 2027. Any liquidity above the midpoint of our guidance range could be deployed toward additional growth investments. This highlights perhaps the most meaningful change in our business.

Scott Haralson
CFO at Hertz

We are increasingly shifting our conversations from how we finance the business to how we allocate capital to create the greatest long-term value. This is an important distinction. It's one that we believe reflects the progress the business has made. I'll leave you with one final thought. Every quarter tells part of the story. Transformations aren't defined by individual quarters. They're defined by the accumulation of hundreds of operational decisions, disciplined and smart capital allocation, consistent execution, and an organization committed to improving every day. That is exactly what we believe we are building here at Hertz. I'll now turn it back to Gil for closing remarks.

Gil West
CEO at Hertz

Yeah. Thanks, Scott. We're proud of the progress we've made in our transformation to date. We've made great strides in shoring up our core rental car business. Adjusted corporate EBITDA improved $1.2 billion in 2025 and another $200 million in the first half of 2026. We are on track to deliver more than $500 million of year-over-year adjusted corporate EBITDA improvement and positive margins this year. That would represent nearly 2,000 basis points of margin expansion in just two years, with more to come in 2027. This quarter, our commercial momentum and operational initiatives continue to translate into results. Looking forward, we know exactly where the work is: revenue, depreciation, cost, and customer experience. Sustaining our progress means executing with discipline across all of these, and we're encouraged by the momentum building across the business by what we're seeing in the opportunities ahead and by the actions already in motion.

Gil West
CEO at Hertz

With that, let's open it up to questions. Back to you, operator.

Operator

We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from the line of Stephanie Moore with Jefferies. Your line is open. Please go ahead.

Stephanie Moore
Stephanie Moore
Analyst at Jefferies

Hi, good morning. Thank you.

Gil West
CEO at Hertz

Thanks, Stephanie.

Stephanie Moore
Stephanie Moore
Analyst at Jefferies

Hi there. Honestly, it looks like a good print, and it sounds like you guys feel pretty confident about where the business is going. In your eyes, what do you view investors are missing here? Because it feels like the drop in market cap just over the past 45 days or so is disconnected from the story you guys are telling and the confidence you have in the direction of the business. Any insight there would be helpful.

Gil West
CEO at Hertz

Yeah. Thanks, Stephanie. This is Gil. I'll chime in. I'm sure Scott will want to add. Great question. Certainly keeping us up at night. Candidly, the valuation of the business today is tough to understand. It's hard not to be distracted by the stock price. Of course, we remain focused on the long game. There really does appear to be a disconnect between how the equity markets view Hertz over the last quarter. The way I think about it is, at the end of the first quarter, we sat at roughly a billion and a half in market cap, which we felt at the time was undervalued. Then during Q2, we refinanced the debt that fell off the revolver.

Gil West
CEO at Hertz

Just prior to the earnings announcement today, for the third quarter, we were only at about a third of that market cap that we were 90 days ago. I would argue we're in a much better position than we were 90 days ago, and there's clear evidence of the momentum that we've been talking about. The core business is performing again. First on liquidity, we've navigated the seasonal low point with liquidity and came out, as Scott mentioned, at roughly $1 billion, which was consistent with what we'd guided. We expect to build liquidity throughout the year and to be free cash flow positive in 2027. As we talked about, we're exploring franchising that not only can add liquidity, but also a path to delever the business.

Gil West
CEO at Hertz

I think the EBITDA results as well for the quarter and year-over-year improvements, despite some headwinds. The commercial momentum revenue that Sandeep talked about is really doing more with less. Revenue up 10% with a 1% smaller fleet. The strategies and the hard work the team's been doing are paying off, and we expect more ahead. Depreciation as well effectively hit our North Star target. Even though we accelerated the rotation of older vehicles, we got a really healthy fleet. That ought to bode well for DPU as we sell those through more lucrative channels. I think the other upside we see is the platform. Scott and I both talked about that, but that's all upside, but it's building momentum. Oro is an example; the valuation of Oro by itself could be very material in the mix as well.

Gil West
CEO at Hertz

Look, I think we're focused on executing the strategies that we have. We know ultimately the stock price will take care of itself. That's really key for us to stay focused and keep moving.

Scott Haralson
CFO at Hertz

Yeah. Hey, Stephanie. Look, I think Gil outlined it well. I think the point is the fundamentals of the business are different than they were two years ago. How we're talking about the business today is different. The traditional rental car portion of our business is strong. Foundational elements of RPD and DPU are in a good position, if not improving. That platform, coupled with the strategic plan that we've outlined, I think the feeling in the building is really a lot different than what we're seeing in the marketplace. That's understandable. Look, I talked about in the prepared remarks, we recognize that our investors are focused on the capital structure and the upcoming debt maturities, and that's okay. Our job is to continue to execute over and over again; all that stuff will play out over time.

Stephanie Moore
Stephanie Moore
Analyst at Jefferies

Thank you. I appreciate the insight there. Just a follow-up for me. I agree; I do think investors are focused on the liquidity profile and the capital structure, it sounds like you have a plan in place. It's kind of a two-part question. Do you have to do some of these franchise deals from a liquidity standpoint? Or is that just more so another option that you have? Secondly, as you think about what keeps you up at night, Gil, as you think about just your liquidity profile, what could go wrong? At this point, it does sound like you've made a lot of actions on your own within your own control, but if I'm an investor and I'm concerned about overall liquidity, is it mostly just a weaker deteriorating macro? Help me alleviate maybe that downside scenario. That's it for me. Thank you.

Gil West
CEO at Hertz

No, I appreciate it. I'll start, and I think, Scott, you can talk more about the liquidity and the franchising piece. As I said earlier in the prepared remarks, we've been facing a lot of headwinds, right, for different reasons. Some are some macros that I mentioned. Others are just working through issues historically. Not to relitigate some of the fleet discussions, but we had to rotate the fleet for a variety of reasons. That was hard to do, especially with the liquidity we had, but we've come out the other side. I think we've been facing headwinds and attacking them head-on.

Gil West
CEO at Hertz

We know things can continue to change and happen, but I think given our starting point and the headwinds that we have faced and the things that could go wrong and did, we managed through that and then come out in a much better place. We've got, what I would say, the momentum, the team, candidly, and the more durable strategies, especially in fleet and revenue, that can sustain us. We're eyes wide open, and we'll manage all the variables as we see them materialize.

Scott Haralson
CFO at Hertz

Stephanie, real quick on liquidity and maybe a little on franchise. I think, over the last two years, much of our discussion has centered around capital structure and really centered on liquidity, ensuring that we had the right resources and needed to support the business, and rightfully so. Today, the conversation is increasingly different because the underlying economics of the business are materially stronger than they were two years ago. As a result of all that, our focus is expanding beyond financing the business to thinking about capital allocation and long-term value. We believe our current liquidity provides us with a lot of flexibility to execute our operational and strategic plans while continuing to evaluate the opportunities to further strengthen the balance sheet. As we think about liquidity, we think we're in a good spot to fund the business.

Scott Haralson
CFO at Hertz

The idea of franchise is we think that is a tremendous idea regardless of our capital structure. It's the right move for the business at this time, particularly with the strategic options around Oro and our fleet. These are capital allocation decisions, not capital structure decisions. We think it's the right move for Hertz today.

Stephanie Moore
Stephanie Moore
Analyst at Jefferies

Thank you, guys. Really appreciate it.

Operator

The next question is from the line of Chris Woronka with Deutsche Bank. Your line is now open. Please go ahead.

Chris Woronka
Chris Woronka
Analyst at Deutsche Bank

Hey, good morning, guys. Thanks for taking the questions.

Gil West
CEO at Hertz

[inaudible]

Chris Woronka
Chris Woronka
Analyst at Deutsche Bank

For all the details. Yeah, morning. I was hoping we could maybe unpack the residual issue a little bit, and you guys covered a lot of ground for Q2, so maybe we can just focus more on the forward-looking. Relative to what you thought maybe three or six months ago, is this more an issue of the market temporarily moving against you for a specific kind of model or something? Or is this really about channel mix not being quite what you thought or hoped? If it's the latter, if it's a channel mix, how confident are you, and what are some of the steps you're taking to get the mix more favorable going forward? I'll have a follow-up. Thanks.

Gil West
CEO at Hertz

Chris, thanks. Good to hear from you. Good question. What I would say on residuals: I tried to cover it in the prepared remarks. I think we saw some things that were unique to the quarter that affected us. Keep in mind the backdrop of the dynamics, right? We saw record tax refunds. We saw that and forecasted that the market would go up. It did. It ran up strong in the first quarter, right? February and March, up 7%, 9% in the rental car index. I think what we saw in the second quarter, again, is those kinds of elevated levels on a year-over-year basis started to normalize in the 1%-2% year-over-year range. You saw a monthly kind of fall-off; I think part of it might have been the pull forward for the tax refund.

Gil West
CEO at Hertz

Keep in mind this is principally the wholesale market. The other dynamic there was volume, right? I think what we saw was a lot of volume. We played a part in that. The rest of the industry did. There were a lot of lease returns coming back as well. That supply-demand imbalance, I think, prices the lever there, especially on the wholesale side. We saw all that play out. I think, ideally, in a perfect world we would use more lucrative channels that aren't exposed to that. The challenge that ultimately we're trying to solve is, one, to build additional capacity in those more lucrative markets. Periodically we have volume to move; we need the capacity to do that. The channel mix side is a problem we've been focused on. We're obviously driving towards higher-yielding channels there.

Gil West
CEO at Hertz

A variety of strategies to do that. Our direct retail, both physical and digital, is the area we focused on. Partnerships are another area. Just know we continue to iterate and figure out how do we move from call it +70%-+80% wholesale volume into flipping that equation to more lucrative channels. It's a big area of our focus; it has the opportunity to create a lot of value for us.

Chris Woronka
Chris Woronka
Analyst at Deutsche Bank

Thanks, Gil. Appreciate that. On the franchise, just to kind of follow up there, I don't want to put the cart before the horse. I know it's still very early days of what you might do there. At a very high level, do you envision that you would have some kind of requirements or standards for franchisees on the liquidity side so that they would remain in good health? Is that something you think you would consider if you go forward on this? Just in general, how much regulation do you want to put out there for franchisees?

Scott Haralson
CFO at Hertz

Yeah. Hey, Chris, this is Scott. I'll start. Look, I think it's probably a little early in the process to talk a lot of specifics around this. I think a couple of things. One is this isn't new for us. We've been doing this for a long time. We just haven't fed that business the way it should. We think it's an interesting option for us to expand that percentage. Today, we're north of 25% for branded revenues franchise. We think that number could be directionally higher. We're not going to today tell you where we think it could end up because we're not sure yet. We do think it's a very interesting channel. We have very high-quality franchisees today, and we'll continue to look for high-quality franchisees that can operate this complex business. We're excited about where it goes, especially from a capital perspective.

Scott Haralson
CFO at Hertz

I think it's much more efficient use of our capital and creates a consistent level of EBITDA. We'll give you more as we go down the path on this, but we're excited where this can go.

Chris Woronka
Chris Woronka
Analyst at Deutsche Bank

Okay. Thanks, guys. Appreciate it.

Operator

The next question is from Rajat Gupta of JPMorgan. Your line is now open. Please go ahead.

Jash Patwa
Jash Patwa
Analyst at JPMorgan

Hi. Good morning. This is Jash Patwa on for Rajat Gupta. Thanks for taking our questions. I just wanted to start on the retail disposition mix and if we could get an update on where that stood in Q2. How should we think about the runway to expand it from your—Is there a natural ceiling or a clear path towards that higher aspiration? It'll also be helpful to understand how the partnerships you've built over the past couple of years with Amazon, eBay, and Cox are factoring into your retail disposition channels. Thanks. I have a quick follow-up.

Gil West
CEO at Hertz

Yeah, sure. Comments in some of this may be repetitive; again, I think it's obvious why we want to try to lean heavier into the higher margin channels. We think of it as any process. It's how do we increase throughput in those and net yield? We've taken a multi-pronged approach, as we've talked about, our do-it-yourself model, direct and physical approach, or digital and direct retail approach. We've also got partnerships now with a number of the larger used car dealerships. I think the point I would make there is, as we look at this with those partnerships, it's how do we move from more a transactional type relationship to a more strategic relationship, right? Because ultimately that approach can create a lot more mutual value between us, which we can each share in.

Gil West
CEO at Hertz

Right now, it's been more transactional, if you will. There's value to create, certainly on the price, certainly on the back end, F&I, and reconditioning cost. Also, what I would call work in progress is our cars sitting there waiting to sell; we would like to be able to operate those and leverage the working capital with that. I think there are a number of opportunities to create a lot of value between us. Scale matters in that environment. We partnered with other retailers, Amazon, eBay, and others, and really leveraged Cox as well to leverage our own direct retail car sales. Progress is being made. I don't want to indicate otherwise. As I said earlier, we think about kind of flipping the volume model from wholesale to the more lucrative channels.

Gil West
CEO at Hertz

From call it, I don't know, 70%-80% wholesale now, depending on seasonally and the month and the volume we're moving to more of a, Hey, we want to see 70%-80% moving through the more lucrative channels. That's been the approach.

Jash Patwa
Jash Patwa
Analyst at JPMorgan

That's very helpful. Thank you for the color. Just as a quick follow-up on Oro, I was curious, what's the magnitude and nature of the investment going into the San Francisco autonomous ramp? How fungible should we think about the infrastructure? Is it built to flex across a range of autonomous players as the ecosystem shakes out, or is it purpose-built to this one specific partner? Thank you.

Gil West
CEO at Hertz

No, thanks. Great question. As I mentioned earlier, we're really excited about where Oro's heading and the capabilities and kind of our rightful place in AVs. What I would say about the infrastructure, and this is really the benefit of Hertz as a background, is we have a lot of infrastructure footprint. We're operating on it. We can pivot and adapt into AVs with that. From an investment standpoint, a lot of that's already there. The biggest item to make sure we have the capability, of course, is EV charging networks in that distributed footprint. As you know, we've got a lot of EV experience, and we have charging networks across the system. It's another infrastructure investment that we've made in prior years that help play out with Oro as well.

Gil West
CEO at Hertz

I think, as I said earlier, if you think about the infrastructure that we have, the ability to operate fleets at scale, and own and finance vehicles. Trying to replicate all that would take a whole lot of time and a lot of money. That's kind of the going-in foundation with Oro that we have, and we're excited about the role we will play in AVs. We see it as kind of that operating layer. The way I look at this candidly is the analogy is what data centers are to AI, and the operating layer is that we play a role in AVs. I think it's required, and we've got a big running start on it.

Jash Patwa
Jash Patwa
Analyst at JPMorgan

That's great, Color. Thank you, and good luck.

Gil West
CEO at Hertz

Thank you.

Scott Haralson
CFO at Hertz

Thank you.

Operator

The next question is from Dan Levy from Barclays. Your line is now open.

Dan Levy
Dan Levy
Analyst at Barclays

Great. Good morning. Thank you for taking the questions. I think you referenced this before, that the challenge with the DOE is that as you are tight on your fleet, you're not getting the scale that you need to drive that DOE per day down to that low-30 North Star metric. Can you just give us a sense of the path to drive it lower if the intention is to keep the fleet levels tight?

Scott Haralson
CFO at Hertz

Yeah. Hey, Dan. This is Scott. I'll also apologize to everyone, too. We're going to be close on time here given the extended remarks, and some of the answers were a bit extended as well. To DOE, look, I think scale is one of the components we've talked about. Not the only one, obviously. We think that a lot of the initiatives that we have in place are obviously moving in the right direction. We talked about core operating expenses down 2% year-over-year on basically flat days. That's an important baseline to start from. Obviously, we have headwinds thinking about RPD-related costs and sale-leasebacks, financing costs. The core business is getting more efficient every year. We haven't even hit all the levers that we think are available. There is room to run on unit cost efficiency. Mathematically, scale is important.

Gil West
CEO at Hertz

No doubt that it is important. It's a combination of all those things. One thing I do want to add, too. We talk about North Stars and the ability to get to $1 billion or beyond. Cost is not our only lever here. Let's make it stated that's the case. We do think there is room to run on DOE per day and unit cost, but it's one of multiple levers, including RPD, RPU, DPU. All of those things are going to be contributors. There is room to run, but it's not the only lever that we have.

Dan Levy
Dan Levy
Analyst at Barclays

Okay, great. Thank you. As a follow-up, wanted to ask about the liquidity dynamics, and just, maybe you can talk about what change in the liquidity guidance you previously said ending the year with in excess of $1.5 billion. Now you're saying $1 billion-$1.4 billion. What is the confidence that those maturities can be addressed? I'm assuming you're already thinking about the different options for those right now.

Scott Haralson
CFO at Hertz

Yeah. Hey, Dan. Just to clarify on the liquidity. Yeah, previous guide was about $1.5 billion. I outlined in the prepared remarks that we removed ATM proceeds from that forecast. That's naturally going to bring it down. We did say that, look, we're going to have the ATM in place, and it remains available, and it's a viable option. It's not in the forecast, really given where stock prices are. We think we have the right amount of liquidity to fund the strategic plans and a little bit of modest growth into 2027. We feel good where that is. On the debt maturities, we know we have a number of debt maturities starting in the front half of 2028, and it's an important topic to investors.

Scott Haralson
CFO at Hertz

We're not going to give specific views on the process today, or even think about probabilities and confidence levels and all these things. I think as you've heard in our prepared remarks and have seen over the last two years, the underlying business is strong and the economics are improving. Plus, we have a good strategic plan that we're executing to, and talked about Oro and franchising and fleet management, retail car sales, service initiatives, all those things. Liquidity is good. We intend to pay its 2026 debt maturities in cash. Maybe most importantly, though, to reiterate, with our views on free cash flow production for the remainder of this year and next year means that we're expecting that we're no longer going to be funding operating losses with debt or other outside capital. It's an important distinction of where we have been historically.

Scott Haralson
CFO at Hertz

We also have a number of levers to pull to generate growth capital. A number of those levers line up with our strategic initiatives around franchising and Oro. We feel good about where we are and where the business is headed, and we'll deal with the maturities in due course.

Dan Levy
Dan Levy
Analyst at Barclays

Great. Thank you.

Operator

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

Analysts
    • Gil West
      CEO at Hertz
    • Sandeep Dube
      EVP and Chief Commercial Officer at Hertz
    • Scott Haralson
      CFO at Hertz
    • Stephanie Moore
      Analyst at Jefferies
    • Chris Woronka
      Analyst at Deutsche Bank
    • Jash Patwa
      Analyst at JPMorgan
    • Dan Levy
      Analyst at Barclays
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