Hertz Global Holdings, Inc · NASDAQ:HTZ
Hertz Global — Q3 2010 Earnings Presentation
38 slides from Hertz Global's earnings presentation, Nov 5, 2010
Slide 1: 3Q 2010 Earnings Call
3Q 2010 Earnings Call November 3, 2010 10:00 am ET Dial in: (800) 230-1085 (US) (612) 288-0337 (International) Passcode: 175614
Slide 2: Safe Harbor Statement
Safe Harbor Statement Certain statements made within this presentation contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance and by their nature are subject to inherent uncertaintie
Slide 3: Non-GAAP Measures
Definitions and reconciliations of these non-GAAP measures are provided at the end of the presentation. The following non-GAAP measures will be used in the presentation: 3 Non-GAAP Measures EBITDA Corporate EBITDA Adjusted Pre-Tax Income Adjusted Net Income Adjusted Diluted Earnings Per Share Net Co
Slide 4: Today's Agenda
Industry & Strategic Overview Mark Frissora, Chairman and CEO Financial & Operating Results Overview Elyse Douglas, Executive VP and CFO Outlook & Guidance Mark Frissora, Chairman and CEO Questions & Answers Session 4 Today’s Agenda
Slide 5: Q3:10 Opening Remarks
5 Q3:10 Opening Remarks Delivered solid third-quarter performance despite slower pace of economic recovery Revenue from U.S. rental car grew faster than public competitors -- 5th consecutive quarter, benefitting from relatively healthy summer pricing environment and higher demand in commercial marke
Slide 6: Q3:10 Consolidated Highlights
6 Balanced strategy focuses on diversified growth and continuously improving cost structure Total company consolidated revenue up 7.1%, or 8.9% excl. FX Generated 29.9% higher adjusted pre-tax income YoY despite: Higher interest expense $3.7 million of negative currency exchange rates Continued inve
Slide 7: U.S. RAC Cost Savings Driving Profit Growth
7 U.S. RAC Cost Savings Driving Profit Growth Q3:10 Peak Q3:07 change Revenue $1,220.7 $1,250.8 -240bps $ in millions Q310 vs. Q307: Successful Growth & Efficiency Strategy Q3:10 adj. pre-tax profit margin 160 bps higher than Q3:07’s pre-recession record high Adj. pre-tax income $14.5 million higher
Slide 8: Q3:10 Consolidated Highlights
8 Consolidated revenue up 7.1%, or 8.9% excl. FX, due to improving volume and pricing trends across all business segments Consolidated adjusted direct operating and SG&A expenses as percent of sales declined 160 basis points, despite: Higher maintenance costs for older equipment rental fleet 18 more
Slide 9: Efficiency & cost management programs continue
9 Efficiency & cost management programs continue Cost savings of $89 million achieved Q3:10 through efficiency programs YTD 9/30/10 cost savings of $330 million FY2010 expected cost savings = $410 million, +7.9% from earlier target Lean/Six Sigma “Lighthouse” programs at major airport locations worl
Slide 10: Q3:10 U.S. RAC Total Revenue +11.4% YoY
Q3:10 U.S. RAC Total Revenue +11.4% YoY 10 Rev. +$124.7 million Total Revenue ($ in millions) 15.8% 35.1% 37.1% 11.9% % of total increase AP Commercial AP Leisure Advantage Off-Airport % Change in Total Revenue On-Airport 73.7% of U.S. RAC Revenue Off-Airport 26.3% of U.S. RAC Revenue RPD * YoY % $4
Slide 11: Q3:10 Hertz U.S. Rent-A-Car
11 Q3:10 Hertz U.S. Rent-A-Car* All Hertz businesses reported higher Revenue per Day Off-Airport same store revenue growth +14% YoY On Airport Commercial business generated RPD growth & double-digit volumes; Leisure pricing strengthened July / August offset slightly by September trough *Excludes imp
Slide 12: U.S. Rent-A-Car RPD Incl. Ancillary Sales
12 U.S. Rent-A-Car* RPD Incl. Ancillary Sales *Excludes impact of Advantage Revenue Per Day(RPD) Q3:10 Q3:09 % Reported RPD — time, mileage, insurance products $44.66 $43.63 2.4% Ancillary product/services - roadside svc, Neverlost, child seats, etc. $5.31 $5.07 Fuel Services $2.16 $1.98 Fully Loade
Slide 13: U.S. Airport Market Share Up 1.5 pps YoY
U.S. Airport Market Share Up 1.5 pps YoY – July 2010 Source: 88% of Hertz corporate location airports reporting TOTAL: 24.9% 1.0% 16.7% 10.3% 21.5% 10.5% 12.5% 13 percentage point
Slide 14: Q3:10 U.S. RAC Operating Performance
14 Q3:10 U.S. RAC Operating Performance Fleet efficiency in line with Q3:09 at 82.2% 9.4% more fleet Commercial traveler, an avg. 3-day mid-week rental, bigger piece of mix YoY – 2.8ppts negative impact on airport fleet efficiency Monthly depreciation per car down 2.5% YoY Used-car resid. values sta
Slide 15: Q3:10 Europe RAC Operating Performance
15 Q3:10 Europe RAC Operating Performance Q3:10 cost reduction programs, account gains, seasonal growth Net promoters score +17% YoY, supporting market share +70 bps Total revenue decreased 0.9%, but up 8.3% excl. FX driven by: 5.8% higher volumes helped by 1.9% longer average rental length 1.5% inc
Slide 16: Hertz Equipment Rental (HERC)
16 Hertz Equipment Rental (HERC) Revenue turned positive Q3:10 3.2% increase in volume YoY Sequentially Q3:10 revenue up 5.8% vs. Q2:10 revenue Volume momentum: Sept. +5.4%; October +10.5% Time utilization* +450 bps to 59.9% vs. Q3:09, and +530 bps vs. Q2:10 Adjusted pre-tax income +33.7% YoY; margi
Slide 17: Growth Drivers
Inbound travel Foreign travelers U.S. & abroad generate revenue of ~ $800mm annually Global travel into U.S. forecasted +6% annually 2010-2014 Source: US Dept of Commerce, ITA, Office of Travel & Tourism May 2010 YTD 9/30/10 inbound U.S. revenue +20.7% YoY with 7.2% higher Revenue Per Transaction –
Slide 18: Rental Car Value Brand Gaining Momentum
18 Rental Car Value Brand Gaining Momentum Acquired April 2009 Profitable with 41 airport locations = 38 major U.S. leisure destinations; 3 leisure destinations in Europe Plans to open 6 more airport locations by year end 2010 Q3:10 same store sales grew 39.6% YoY Adjusted pre-tax profit tripled vs.
Slide 19: Consolidated Financial Results
Definitions and reconciliations of these non-GAAP measures are provided at the end of the presentation. 19 Consolidated Financial Results GAAP Q3 10 Q3 09 $ Change Revenue $2,186.3 $2,041.4 + $144.9 Pre-Tax Income $158.3 $75.8 + $82.5 Net Income $156.6 $64.5 + $92.1 Diluted Earnings per Share $0.36
Slide 20: Rent-A-Car Metrics
20 Rent-A-Car Metrics % of WW RAC revenue Q3:10 vs. Q3:09 Total Revenue* Rental Rate Revenue* Revenue Per Day (RPD) Trans. Days Revenue Per Transaction Transactions Trans Length (days) 64% U.S. (Hertz + Advantage) 11.4% 10.8% 1.7% 8.9% 2.2% 8.4% 0.5% U.S. (Hertz Classic) 9.8% 9.2% 2.4% 6.7% 3.0% 6.1
Slide 21: Worldwide RAC Fleet Efficiency
Worldwide RAC Fleet Efficiency Fleet efficiency: % of days car is rented compared with avg. number vehicles available to rent. Formula: ((Annualized Transaction Days / 365) / Average Fleet)) 21 Rebound in commercial travel Demand peaks mid-week; rental length typically only 3-4 days Leisure rentals
Slide 22: Rent-A-Car Fleet Depreciation
22 Worldwide monthly rental car net depreciation per unit down 5.6% Q3 YoY Europe monthly net depreciation per car improved 11.8% in Q3:10 YoY Residual values in Europe still 15% below 2007 pre-recession levels U.S. Q3:10 monthly net depreciation per car down 2.5% YoY 4.6% below Q3:07 pre-recession
Slide 23: Increasing use of non-auction sales channels
23 Increasing use of non-auction sales channels U.S. auction sales 54% of total Q3:10 down from 87% in FY07 Dealer-direct now 23% of all U.S. risk car sales, up from 2% in FY07 Retail / online auction/ Rent2buy - cars on rent up until the day purchased Now licensed in 24 states to sell cars through
Slide 24: Rental Car Fleet Mix
24 Rental Car Fleet Mix Q3:10 Q3:09 U.S. Risk % 64% 66% Europe Risk % 53% 54% Worldwide Risk % 62% 64%
Slide 25: HERC Pricing Performance and EBITDA Bridge
25 Hertz Equipment Rental (HERC) 2-Yr Quarterly Pricing Performance ‘08-’10 HERC Corporate EBITDA Bridge ($ in millions) Quarterly Pricing Performance 2010 YoY Sunbelt Note: Q1: quarter ended April; Q2: quarter ended July
Slide 26: Hertz Equipment Rental (HERC) North America
Total revenue increased 0.2% Rental and rental related revenue +1.2% Depreciation down 7.3% Average fleet age: 49 months, +6.5 months from Q3:09 Higher maintenance expenses incurred to ready fleet for recent demand and higher expenses associated with older fleet Purchase new equipment selectively fo
Slide 27: HERC Fleet Statistics
27 HERC Fleet Statistics WW HERC Fleet Size ($ in millions) WW HERC Fleet ($ in millions) Excludes FX Q3:10 Q3:09 Purchases $125.3 $18.6 Disposals $42.0 $24.5 Disposals (1st cost basis) $101.9 $45.9 YTD Q3:10 YTDQ3:09 Purchases $188.1 $50.0 Disposals $126.9 $140.6 Disposals (1st cost basis) $263.5 $
Slide 28: Q3:10 Financing Update
28 Q3:10 FINANCING UPDATE Financing Status Comment EUR 400M France/Netherlands Securitization [$558mm US at 11/1/10] Refinanced a portion of existing International ABS Facility $750M Series 2001-1 Senior & Subordinated ABS Incremental Fleet Financing for Fleet Growth Blended advance rate of 75% Firs
Slide 29: Balance Sheet
29 Closing Australian & Brazilian refinancings later this month Evaluating early renewal of $2.1bb U.S. VFN due 2011 Finalizing strategy for corporate credit facility renewals, expected in first half of 2011 $1.8bb ABL facility matures Feb. 2012 $1.35bb Term Loan matures Dec. 2012 Balance Sheet
Slide 30: Q3:10 & YTD Cash Flow
30 $529mm equity offering YTD 9/30/09 Improved earnings Improved working capital Increased fleet for seasonal demand Larger investments in both RAC & HERC vs. 2009 Q3:10 & YTD Cash Flow Cash Flow YTD 9/39/10 ($ in millions) 2010 2009 $ Levered Cash Flow Before Fleet Growth $452.1 $308.5 $143.6 Lever
Slide 31: Interest Expense | Restructuring | Taxes
Interest expense, net of interest income, +$32.6 million Q3:10 vs. prior year Higher fleet levels; higher European fleet financing costs YoY FY10 now expect incr. interest expense $90-$95mm YoY $13mm interest incurred Q4:10 on $700mm high yield notes issued Sept. Restructuring & restructuring-relate
Slide 32: Covenant Compliance
32 Full compliance with corporate covenants 4.20x (Max 5.25x) on consolidated leverage ratio 3.57x (Min 2.00x) on interest coverage ratio Covenant Compliance NOTE: Covenant calculations do not include Convertible Notes issued under Hertz Global Holdings in May 2009, since covenants only apply to The
Slide 33: Risks: Economic Volatility
33 Risks: Economic Volatility Year Mar Jun Sep Dec 2010 3.70 1.70 2.00 2009 -4.90 -0.70 1.60 5.00 2008 -0.70 0.60 -4.00 -6.80
Slide 34: U.S. Rental Car Market Growth
34 U.S. Rental Car Market Growth U.S. Rental Car Industry Grows as % of GDP Sources: Industry Airline Revenue: FAA, Industry Airport Car Rental Revenue: Airport Concession Reports, Industry Off Airport Car rental revenue: Bain (Sept. 2009) The contribution of the U.S. rental car industry to the U.S.
Slide 35: Q4:10 Outlook
35 Q4:10 Outlook Cautiously optimistic about macro trends going forward in both businesses U.S. & Europe RAC Seasonally, Q4:10 low-demand quarter for leisure airport rentals Global environment for commercial travel remains strong Advantage and off-airport demand continues to grow Fleets rightsized;
Slide 36: Hertz Growth Opportunities by Market
Hertz Growth Opportunities by Market 36 ‘09 Trough to ‘07 Peak Opportunity: +58% Revenues ($ in millions) Revenues ($ in millions) Revenues ($ in millions) Revenue '07-'09 Recovery Recovered YTD 2010 Markets FY07 FY09 $ Opportunity % US AP Commercial $1,535 $1,158 ($377) 33% 16% US Airport Leisure $
Slide 37: FY 2010 Financial Guidance
Total Revenue: $7.5 to $7.7 bln 8.4% Adjusted pre-tax income: $315 to $325mln 63.4% Worldwide monthly depreciation per car down 7% to 8%, excl. FX Corporate EBITDA: $1.080 to $1.095 bln 11.7% Adjusted EPS: $0.47 to $0.48 65.5% 37 FY 2010 Financial Guidance Based on full-year adjusted diluted share c
Slide 38: 4th Quarter 2010 Sensitivity to Adjusted Pre-tax Income
38 4th Quarter 2010 Sensitivity to Adjusted Pre-tax Income Adjusted Pre-tax Impact ($mil) of 1.0% Change1 WW RAC Pricing Volume (Days) Net Depr. Per unit $12.0 4.0 4.0 WW HERC Pricing Volume 2.0 1.0 Cost Efficiencies 13.0 Total Sensitivity per 1.0% improvement $36.0 2 1 Percent change over Q4:09 21.
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