Hertz Global Holdings Inc. reported second quarter 2009 worldwide revenues of $1.8 billion, a decrease of 22.9 percent, or $520.8 million, year-over-year (an 18.7 percent decrease in constant currency). Worldwide car rental revenues for the quarter decreased 19.4 percent (a 14.9 percent decrease in constant currency) to $1.5 billion. Revenues from worldwide equipment rental for the second quarter were $277.0 million, down 37.5 percent (a 34.6 percent decrease in constant currency) over the prior year period.
Second quarter 2009 adjusted pre-tax income was $81.1 million, versus $154.7 million in 2008, and income before income taxes (pre-tax income), on a GAAP basis, was $30.7 million, versus $93.0 million in the second quarter of 2008. Corporate EBITDA for the second quarter of 2009 was $280.7 million, a decrease of 25.8 percent from the same period in 2008.
Second quarter 2009 adjusted net income was $49.6 million versus $96.4 million in the same period of 2008, resulting in adjusted diluted earnings per share for the quarter of $0.12, compared with $0.30 for the second quarter of 2008. Second quarter 2009 net income, on a GAAP basis, was $3.9 million or $0.01 per share on a diluted basis, compared with $51.2 million, or $0.16 per share on a diluted basis, for the second quarter of 2008.
Mark P. Frissora, the company’s chairman and CEO, said, “In the second quarter we continued to make solid progress mitigating the effects of lower revenues attributable to the recession. We achieved a second quarter profit on a GAAP and non-GAAP basis, narrowing the year-over-year decline in adjusted pre-tax income to $74 million, on $521 million lower revenues, or profit retention of 86 percent. We also retained over 80 percent of Corporate EBITDA. Our cost reduction efforts are on target and we expect to achieve annualized savings of at least $570 million this year. We achieved a 150 basis point improvement in the worldwide car rental adjusted pre-tax margin in the second quarter, to 9.7 percent, and a Corporate EBITDA margin of 16 percent, only slightly lower than last year. Additionally, volume and pricing trends have improved for the summer car rental peak in Europe and the U.S., and used car values in the U.S. are close to 2008 levels. The equipment rental business remains challenging, but HERC continues to generate Corporate EBITDA margins exceeding 40 percent, which we expect will continue throughout 2009. We were especially pleased to generate incremental total net cash flow of approximately $1.65 billion for the first six months of this year.”
The company took $33.3 million in restructuring and related charges in the second quarter of 2009, primarily attributable to costs associated with job reductions, the closure of rental locations and outsourcing/process reengineering. The company said it expects restructuring and related charges will diminish significantly starting in 2010.
The company stated it believes the General Motors bankruptcy will have minimal if any impact on its business, financial condition or results of operations. General Motors has paid the company all amounts, both pre and post-filing, owed under repurchase programs, assumed, with approval of the bankruptcy court, the vehicle repurchase program and assigned them to the New General Motors, and New General Motors continues to pay the company all amounts owed under the repurchase programs. Additionally, residual values for General Motors vehicles have increased since the bankruptcy filing.
The company ended the second quarter of 2009 with total debt of $9.8 billion and net corporate debt(1) of $4.0 billion, compared with total debt of $9.69 billion and net corporate debt of $3.85 billion as of March 31, 2009, an increase in net corporate debt of $154.3 million. The increase is attributable to additional amounts outstanding as a result of our issuance of an aggregate of approximately $475 million in principal amount of 5.25 percent Convertible Senior Notes issued in May and June 2009, partially offset by a reduction in our indebtedness due to the buyback of portions of The Hertz Corporation's outstanding debt securities. Total net cash flow(1) for the quarter was a use of $128.0 million compared with a use of $920.6 million in the second quarter of 2008. The improvement of $792.6 million is attributable to better management of fleet rotation to preserve liquidity and increase cash flow and proceeds from the sale of our common stock. Total liquidity(2) was approximately $4.5 billion as of June 30, 2009. On a GAAP basis, net cash provided by operating activities was $513.9 million in the second quarter of 2009, compared to $603.2 million, as revised ($708.3 million, as reported) in the second quarter of 2008(3).
The company generated total net cash flow yield(1) of 91.2 percent, based on the company’s $2,242.0 million of total net cash flow, for the 12 months ending June 30, 2009, compared with total net cash flow yield of 9.3 percent, based on the company’s $513.1 million of total net cash flow, for the 12 months ending June 30, 2008.
Worldwide Car Rental
The company noted the U.S. car rental business continued to make progress in the second quarter generating year-over-year operational efficiencies in several areas including fleet, staffing and exposure to certain U.S. auto manufacturers. A few key metrics include:
- Transaction length increased 4.4 percent over last year, driven primarily by leisure and off-airport transactions, including the new multi-month rental product.
- Revenue per transaction, a good measure of pricing and transaction length mix, increased 3 percent year-over-year.
- 14.3 percent lower average U.S. car-rental fleet compared with the second quarter of 2008, taking advantage of an improving used car market to delete some older vehicles.
Worldwide car rental revenues were $1.5 billion for the second quarter of 2009, a decrease of 19.4 percent (a 14.9 percent decrease in constant currency) from the prior year period. Transaction days for the quarter decreased 11.8 percent [(10.8) percent U.S.; (13.7) percent International]. U.S. off-airport revenues for the second quarter decreased 5 percent year-over-year, and transaction days declined 1.2 percent. Rental rate revenue per transaction day(1) (RPD) for the quarter was 1.7 percent below the prior year period [(1.3) percent U.S.; (2.3) percent International].
Worldwide car rental adjusted pre-tax income for the second quarter of 2009 was $143.5 million versus $149.4 million last year. The decrease is attributable to decreased volume and pricing, partially offset by strong cost management performance. Worldwide car rental achieved an adjusted pre-tax margin, based on revenues, of 9.7 percent for the quarter versus 8.2 percent in 2008.
The worldwide average number of company-operated cars for the second quarter of 2009 was 405,400, a decrease of 14.7 percent over the prior year period.
For the full-year 2009, the company still expects to generate worldwide revenues in the range of $6.7 to $7.0 billion, Corporate EBITDA in the range of $900 million to $935 million, adjusted pre-tax income in the range of $100 to $120 million and adjusted diluted earnings per share in the range of $0.12 to $0.15, (using the normalized tax rate of 34 percent and 407.7 million shares, the number of diluted shares expected to be outstanding for the year ended Dec. 31, 2009). (4)
Results of the Hertz Corporation
The company’s operating subsidiary, The Hertz Corp. (Hertz), posted the same revenues for the second quarter of 2009 as the company. Hertz’s second quarter of 2009 pre-tax income was, however, $4.2 million higher than that of the company primarily because of additional interest expense recognized by the company on its 5.25 percent Convertible Senior Notes issued in May and June 2009.
(1) Adjusted net income, adjusted diluted earnings per share, adjusted pre-tax income, Corporate EBITDA, net corporate debt, total net cash flow, total net cash flow yield, rental rate revenue per transaction day and profit retention are non-GAAP measures. See the accompanying Attachments 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 regarding the company’s financial condition and results of operations.
(2) Total liquidity of $4.5 billion is comprised of $0.6 billion of cash, $1.1 billion of undrawn corporate liquidity and $2.8 billion of fleet financing availability. Total liquidity is subject to borrowing base limitations and other factors—we had $2.0 billion of the borrowing base available at June 30, 2009 and $0.6 billion of cash. In addition, the $4.5 billion of total liquidity as June 30, 2009 does not include any of the $825 million of availability under our Series 2008-1 variable funding notes. We will again have access to these funds as soon as General Motors Company (the new GM) is included as an “Eligible Manufacturer” and an "Eligible Program Manufacturer" under our ABS credit facilities—by means of appropriate action by the rating agencies or an amendment to the ABS Base Indenture.
(3) We have historically included changes in accounts payable and accounts receivable arising from purchases and sales of our revenue earning equipment (REE), including cars in the rental car segment and equipment in the equipment rental segment, as well as the purchase and sale of other property and equipment, in our cash flows from operating activities. Similarly, the amounts of REE and property and equipment expenditures and proceeds from the sales of REE and property and equipment as reported in the investing section of the statement of cash flows have included amounts for which cash settlement has not yet occurred.
After further review, management has concluded that the appropriate reporting of REE and property and equipment purchase and sales transactions for which cash has not been disbursed or received, is to exclude them from the operating and investing sections of our statements of cash flows. The net revisions of amounts reported in the operating and investing sections of our cash flow statements are equal and offsetting, and therefore there is no impact on our previously reported total liquidity, total net cash flow, adjusted pre-tax income, adjusted net income, unlevered pre-tax cash flow, levered after tax cash flow after fleet growth, corporate EBITDA or net corporate debt. While this revision shifts certain non-cash amounts within our cash flow statements from one period to the next, affecting the amounts of net cash flows from operating activities and net cash flows from investing activities by equal and offsetting amounts (which amounts are significant in most periods), it does not affect management's previously issued disclosures regarding liquidity or our compliance with debt covenant ratio calculations. Accordingly, management has concluded that this revision is not material to the company’s previously issued financial statements. Refer to Table 9, Footnote (a) for previously reported and revised amounts.
(4) Management believes that Corporate EBITDA, adjusted pre-tax income and adjusted diluted earnings per share are useful in measuring the comparable results of the company period-over-period. The GAAP measures most directly comparable to Corporate EBITDA, adjusted pre-tax income and adjusted diluted earnings per share are cash flows from operating activities, pre-tax income and diluted earnings per share. Because of the forward-looking nature of the company’s forecasted Corporate EBITDA, adjusted pre-tax income and adjusted diluted earnings per share, specific quantifications of the amounts that would be required to reconcile forecasted cash flows from operating activities, pre-tax income and diluted earnings per share to forecasted Corporate EBITDA, adjusted pre-tax income and adjusted diluted earnings per share 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 income tax reporting and certain adjustments made in order to arrive at the relevant non-GAAP measures, which preclude the company from providing accurate forecasted 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 Corporate EBITDA, adjusted pre-tax income and adjusted diluted earnings per share to forecasted pre-tax income and earnings per share would imply a degree of precision that could be confusing or misleading to investors for the reasons identified above.