Hertz Global Holdings, Inc · NASDAQ:HTZ
Hertz Global — Q2 2012 Earnings Presentation
42 slides from Hertz Global's earnings presentation, Aug 1, 2012
Slide 1: 2Q 2012 Earnings Call
2Q 2012 Earnings Call July 31, 2012 10:00 am ET Dial in: (866) 269-9612 (US) (612) 332-0345 (International) Passcode: 253851 Replay available until August 14: (800) 475-6701 U.S.; (320) 365-3844 international passcode: 253851
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: Non-GAAP Measures EBITDA Corporate EBITDA Adjusted Pre-Tax Income Adjusted Net Income Adjusted Diluted Earnings Per Share (Adjuste
Slide 4: Today's Agenda
Q2:12 Drivers Mark Frissora, Chairman and CEO Q2:12 Financial Overview Elyse Douglas, Executive VP and CFO 2012 Outlook & Residual Values Mark Frissora, Chairman and CEO Questions & Answers Session Today’s Agenda
Slide 5: Opening Comments
Opening Comments
Slide 6: Record Q2:12 Results
RECORD Q2:12 RESULTS * Definitions and reconciliations of these non-GAAP measures are provided at the end of the presentation. GAAP Q2:12 Results Q2:11 Results YoY Change Revenue $2,225.1 $2,072.3 7.4% Income before income taxes $158.7 $94.6 67.8% Income per share $0.21 $0.12 75.0% Diluted shares ou
Slide 7: Profit Stability: Strategic Offsets to Global Volatility
Profit Stability Strategic Offsets to Global Volatility Q2:2012 Examples Fleet leasing (multi-year contracts) Donlen revenue +16.9% YoY (on a pro forma basis) RAC entry into emerging markets Brazil / China revenue +23.3% excl. FX Insurance replacement rentals Volume +19.2% (U.S. RAC) Value brand to
Slide 8: Q2:12 U.S. RAC Total Revenue
Q2:12 U.S. RAC Total Revenue +6.7% YoY Rev. +$75.2 million Total Revenue ($ in millions) 23.1% 48.2% 28.7% % of total increase Airport Advantage Off-Airport % Change in Total Revenue On-Airport 72.8% of U.S. RAC Revenue Off-Airport 27.2% of U.S. RAC Revenue RPD * $52.53 $32.86 $35.72 Trans Days +3.3
Slide 9: U.S. Rental Car Q2:12
U.S. Rental Car Q2:12 Hertz Classic airport leisure rental RPD +1.4% YoY Benefitting from dual brand strategy & tight fleet capacity Decline in Advantage RPD reflects Tier 3 competitor share growth Corporate pricing remains under pressure Average length of rental +3.0% = greater cost efficiency Flee
Slide 10: U.S. RAC Shift to More Profitable Channels
U.S. RAC Shift to More Profitable Channels Channel YoY Retail / Rent2Buy +6pts Dealer Direct +4 pts Wholesale Auction -7 pts Online Auction -3 pts Q2:12
Slide 11: Q2:12 Advantage Performance Update
Q2:12 Advantage Performance Update U.S. revenue up 41.9%, 31% on same-store basis (stores open >12 mos.) U.S. adjusted pre-tax margin 920 basis-point expansion U.S. fleet efficiency +590 bps YoY Average rental length 5% greater YoY Adj. direct operating and SG&A expense margin down 910 bps Lower mon
Slide 12: Non-North America Rental Car Q2:12
Non-North America Rental Car Q2:12 Europe rental car Q2:12 7.2% adj. pre-tax margin Operating expenses 8% lower YoY Fleet efficiency +~1%; Fleet down 3.1% Residual values continue to decline Transactions flat YoY Transaction days down 2% RPD down 3.5% excluding FX Excl. Advantage, RPD down 1.6% excl
Slide 13: Equipment Rental (HERC) Q2:12
Equipment Rental (HERC) Q2:12 WW rental rate revenue excl. FX +14.3% YoY N.A. revenue +15.2% U.S. revenue +18.8% WW volume +12.6%; N.A. volume +13.5%; U.S. + 12.3% WW pricing +3.6% YoY N.A. pricing +4.2% National Account base grows to 56% of N.A. rental rate revenue N.A. local account pricing +9.4%
Slide 14: Elyse Douglas CFO: Financial Results, Cash Flow, Balance Sheet
Elyse Douglas CFO Financial Results Cash Flow Review Balance Sheet Review
Slide 15: Consolidated Results
Consolidated Results Q2:12 Q2:11 % var Car rental $1,889.6 $1,768.8 6.8% Equipment rental 335.0 301.7 11.0% Other reconciling items 0.5 1.8 -72.2% Consolidated revenue $2,225.1 $2,072.3 7.4% Consolidated adj. pre-tax 233.9 184.4 26.8% Consolidated adj. earnings per share 0.35 0.26 34.6% GAAP consol.
Slide 16: Direct Operating Expense Contributes to Total Savings
Q2:12 Total Cost Savings = $107M ($ in millions) Q2:12 Q2:11 % chg Revenues $2,225.1 $2,072.3 7.4% Reported DOE: Fleet related $287.3 $287.0 0.1% Personnel related 384.0 373.5 2.8% Other 517.6 526.8 -1.7% Total DOE $1,188.9 $1,187.3 0.1% % of revenue 53.4% 57.3% Improvements driven by: Continued ben
Slide 17: 2012 Cost Savings Update
2012 Cost Savings Update Efficiency & cost management programs continue support profit growth FY2012 goal now $350 million $207 million achieved first half of 2012 Lean/Six Sigma “Lighthouse”: Completed in Q2:12 – N.A. RAC: 2 // Int’l RAC: 6 // HERC: 2 Completed thru 6/30/12 – N.A. RAC: 38 // Int’l
Slide 18: 2012 Currency
2012 Currency Impact from currency greater for revenue than pre-tax Natural hedge against FX rate chgs: revenue & expenses in same FXs Foreign currency exposure: Europe (GBP & Euro) ~19% total rev.; Other Int’l RAC (CAD & AUD) ~7% total rev. Q2:12 Q2:11 $ var % var Consolidated revenue $2,225.1 $2,0
Slide 19: Rent-A-Car Metrics: Q2:12 vs. Q2:11
Rent-A-Car Metrics: Q2:12 vs. Q2:11 % of WW RAC Total* Revenue Q2:12 vs. Q2:12 Total Revenue Rental Rate Revenue** Revenue Per Day (RPD) Trans. Days Revenue Per Transaction Transactions Trans Length (days) 54% U.S. 6.7% 6.7% -3.1% 10.1% -0.2% 6.9% 3.0% Mix adjusted -1.9% 25% International -11.0% -3.
Slide 20: Worldwide Rent A Car Q2:12
Worldwide Rent A Car Q2:12 WW RAC = 85% of total company revenue Q2:12 WW RAC total revenue ~$1.9 billion; +6.8% YoY Unit Fleet Mix 6/30/12 6/30/11 U.S. Risk% 83% 68% Europe Risk% 56% 51% WW Risk % 78% 65% Strategically increasing U.S. mix of risk vehicles to capitalize on more profitable resale cha
Slide 21: Donlen
Donlen Donlen acquired September 1, 2011 Pro forma 2011 includes adjustments related to the purchase of the company New product offerings Hertz Value Lease: lower-cost leasing from Hertz rental fleet inventory Equipment rental: offer fixed-term leasing solutions Fleet management solution: share tele
Slide 22: Q2:12 Revenue – WW HERC
Q2:12 Revenue – WW HERC Revenue WW total revenue +11.0% = price +3.6%; volume +12.6% NA revenue +15.2% = price +4.2%; volume +13.5% Entertainment services and pump & power outpaced NA growth Revenue excludes used equipment sales Q2:12 Q2:11 Construction 36% 35% Industrial 28% 29% Fragmented 36% 36%
Slide 23: HERC Key Metrics
HERC Key Metrics Now using American Rental Association (ARA) calculations for: Pricing Fleet Age Time utilization Dollar utilization Updated historical metrics for proper YoY comparison Dollar utilization: lower for higher cost equipment (earthmoving) impacted by level of refurbishments Note: HERC &
Slide 24: Q2:12 Profit – WW HERC
Q2:12 adjusted pre-tax income $42.5M, +27.2% Adjusted pre-tax margin 12.7% +160bps YoY DOE and SG&A down 1020 bps as % of revenue Q2:12 Corporate EBITDA improved 12.1% YoY Corp. EBITDA incremental revenue flow through ~41% Q2:12 Q2:12 negatively impacted by higher insurance claims, legal settlement
Slide 25: Q2:12 WW HERC Fleet Statistics
Q2:12 WWHERC Fleet Statistics ($ in millions) WW HERC Fleet – Cash Basis ** ($ in millions) Excludes FX Q2:12 Q2:11 Fleet Expenditures $205.4 $83.9 Disposal Proceeds $48.2 $43.2 Net Capital Expenditures $157.2 $40.7 (cash basis) ** Above amounts are on a cash flow basis, consistent with our GAAP sta
Slide 26: U.S. Equipment Rental Residual Values
U.S. Equipment Rental Residual Values Industry residual values continue to improve Retail values at 2007 levels; June 2012 100 bps above Q3:07 peak HERC sales channels Q2:12 = retail / wholesale 70%; auction 24%; manufacturer buyback 6% Fair Market Value (Retail) Forced Liquidation Value (Auction) S
Slide 27: Interest Expense Summary
Interest Expense Summary GAAP Total Interest Expense Q2:12 Q2:11 $152.2M $165.8M Q2:12 Q2:11 $131.6M $138.7M Cash Interest Expense Savings $13.6 Million Savings $7.1 Million Reflects lower rates from refinancing activity and favorable foreign currency translation
Slide 28: Q2:12 Restructuring | Taxes
Restructuring & restructuring-related charges Q2:12 was $21.1M vs. Q2:11 of $36.5M Primarily reflects European rationalization and global reductions related to process & organizational redesign Related cash payments in Q2:12 were $21.1M vs. $13.8M the prior year Taxes Q2:12 GAAP effective income tax
Slide 29: Cash Flow
Cash Flow Cash Provided by Operating Activities ($ in millions) Q2:12 Q2:11 $ Net Cash Provided by Operating Activities $666.4 $521.3 $145.1 Corporate Cash Flow $(133.6) $(241.4) $107.8 Note: The presentation of the Corporate Cash Flow was updated in Q1:11 Conceptually same as Levered After Tax Cash
Slide 30: Liquidity & Debt
Liquidity & Debt Corporate Liquidity @ 6/30/12 ($ in millions) ABL Availability: $ 782 Unrestricted Cash: 586 Corporate Liquidity: $1,368 Total net corporate debt $4.1 billion Total net fleet debt $7.6 billion Net corporate debt / corporate EBITDA ratio 2.8x
Slide 31: Outlook
E OUTLOOK a
Slide 32: FY:12 Financial Guidance Unchanged
FY:12 Financial Guidance Unchanged Guidance % YoY Revenue $8.90 to $9.00 bil +8.5% Corporate EBITDA $1.60 to $1.66 bil +20.1% Adj. Pre-Tax Income $870 to $940 mil +38.1% Adj. Net Income $570 to $620 mil +44.3% Adjusted Diluted EPS* $1.28 to $1.38 +42.3% * Share count FY:12 = 450 mil RISKS: US politi
Slide 33: Economic Model: 3-Year Plan
LTM 6/30/20121 3 Year2 Goals Revenue Growth 9% 7%-8% Fleet Cost % of Revenue 28% 24%-25% OpEx & SG&A % of Revenue 61% 57%-59% Corp. Interest % of Revenue 3% 2.3%-2.7% Adjusted Pre-tax % of Revenue 9% 14%-15% Corp. EBITDA % of Revenue 17% 21%-23% Economic Model 3-Year Plan: Superior Revenue and EPS G
Slide 34: 2H:12 Outlook
EU Rental Car Recovery from bottom slower than expected Still tough resale market Restructuring continues U.S. Rental Car Performance tracking to plan HTZ tight fleeted in Q3 Commercial pricing continues to be challenging Growth initiatives build up resiliency of business Rental car residual values
Slide 35: Profit Stability Due to Business Model's Self-leveling Effect
“Investors won’t pay for residuals. They believe it’s transitory profit.” -- Buy-side “Investors are reluctant to pay for a higher multiple as much of the higher earnings increase is due to better used car prices, which companies have no control over.” -- Sell-side Profit Stability Due to Business M
Slide 36: Lower Sale Prices Offset by Lower Purchase Prices
Lower Sale Prices Offset by Lower Purchase Prices When residual values declined / increased New car prices declined / increased R-squared correlation coefficient = .81
Slide 37: Higher Rental Prices Offset Higher Fleet Costs
Higher Rental Prices Offset Higher Fleet Costs Typically when fleet costs increased / decreased *1pt of price = $37 million pre-tax income *1 pt of residual value = $25 million pretax income Rental prices increased / decreased 2008 correlation skewed by recession U.S. RAC Pretax income YoY U.S. RAC
Slide 38: Supply Constrained / Demand Building
Supply Constrained / Demand Building Pent-up consumer demand as older & higher-mileage cars on road increases Low number of off-lease vehicles keeps late-model used car supply tight Source: Conference Board survey of consumer confidence In Millions of Units Source: Manheim Consulting 2012 U.S. Off-L
Slide 39: Residual Values - Outlook
Hertz aligned with Moody’s forecast: Expect residuals (2-3%) over next 2 yrs Residual Values - Outlook *5 pts of Manheim selling price = ~2-3 pts of residual value (sale price as % of cap. cost) Moody’s Manheim Index Forecast* -5pts*
Slide 40: If Residual Values Soften
Multiple off-sets Extend vehicle holding period Reduce new fleet orders Adjust fleet mix Purchase used vehicles More economical vehicles More risk vehicles Improve utilization Shift vehicles sales to more profitable channels If Residual Values Soften
Slide 41: Growing into Higher-Return Resale Channels
Shifting to Higher-Return Sales Channels % of Total Hertz Vehicle Sales Net Gain vs. Auction Retail & R2B Dealer Direct Growing into Higher-Return Resale Channels
Slide 42: Q & A
Q & A Table 1 HERTZ GLOBAL HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share amounts) Unaudited Three Months Ended As a Percentage June 30, of Total Revenues 2012 2011 2012 2011 Total revenues $ 2,225.1 $ 2,072.3 100.0 % 100.0 % Expenses: Direct operating
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