Justin Keppy: Yes. Thanks Alex. So, first of all, I’d like to say that we’re about providing our customers with choice, and we do see attractive demand for EVs. Natural markets are the ride share, which continues to grow, is up over 50% year-over-year from a quarterly basis. And also on the off-airport as well as airport, we do see demand. That said, our mantra has been our ROA mindset and keeping supply inside of demand. And we’re moving forward with the further rightsizing, the incremental 10,000 — bringing the total population of EVs that are being looked at to sell to 30,000. And it’s kind of the decision of why is our progress here in Q1, we’ve sold about 10,000, which puts us on track to certainly meet the 12-month hold-for-sale sale period, and continue with that momentum.
And as we right-size this EV fleet, we expect a couple of things. One, it will be better aligned with demand, which we expect to improve both utilization as well as RPD as we align it with customers that are seeking out the EVs. And also, it’s going to eliminate a portion of collision with renters that are not familiar with the operations of driving a new EV who otherwise would have chosen to take an ICE vehicle, which, unfortunately, what they’re needing to take an EV based on the fleet mix. So, again, with the benefit from a reduction of fleet carrying costs, the lower operating costs also are with maintenance and transport, as you think about things with remote charging, we see a combination of benefits by further taking down an additional 10,000 that will right-size demand with our supply.
Thanks for the question.
Ian Zaffino: Thank you very much.
Operator: Thank you. Our next question will come from the line of John Babcock from Bank of America. Your line is open.
John Babcock: Hey good morning and thanks for taking my questions. I guess, my first question is just on the liquidity front. I mean we’ve gotten a lot of questions from investors on this. And I was wondering, first of all, if you could just talk about what tools you have to boost liquidity. That would be useful. And then also just generally how you’re thinking about it, particularly in line with refreshing the fleet and how you’ll execute on that and whether that potentially entails reducing the fleet. You did talk about keeping supply below demand. So, maybe that’s the answer. But maybe you can just talk broadly about that and how you’d guide investors. That would be useful.
Alexandra Brooks: Yes, John, this is Alex. Thanks for the question. I said it in my prepared remarks, but it’s worth repeating, that we believe we have sufficient liquidity to complete the refresh as we have planned for it. So, let me just put that out there. In terms of our tools to manage liquidity, you’re absolutely right in pointing to our fleet management as being the most pervasive tool we have. So, we do have a plan for a fleet rotation that includes deleting some of our higher cap cost vehicles that enables us to purchase new vehicles come in at a lower cap cost. When we do that, that actually improves our liquidity because the debt that we take on during that will be less than the debt we have outstanding now on these higher cap cost vehicles. So, that rotation improves liquidity. And we have line of sight to what we need to do for the end of this year and maintain sufficient liquidity.
John Babcock: Got you. And then next question, and I know you’re not providing any sort of quarterly guidance, but I was wondering if you might be able to provide some either qualitative or ideally quantitative, but at least qualitative, guidance on how we should think about fleet costs over the year because it’s very unpredictable from quarter-to-quarter as we’ve seen, particularly in light of the decline in used prices. So, any sort of color you could provide on that, whether it’s going to go up, whether it’s going to go down, or if there are certain factors we should be paying attention to get more color on that? That would be helpful.
Alexandra Brooks: Yes, I think Darren’s comments around where we expect fleet size to be relative to overall demand and how we’re running a tight fleet should provide an overview of what we expect to happen just with our — the size of our fleet. So, taking into account the size of our fleet, and as I mentioned, rotating out higher cap cost vehicles and replacing those with lower cap cost vehicles, is we expect the expenditures on fleet to be relatively stable through the end of the year.
John Babcock: Okay. Thank you. I’ll pass it on.
Alexandra Brooks: Of course.
Operator: Thank you. And our next question will come from the line of John Healy from Northcoast Research. Your line is open.
John Healy: Thank you for taking my questions. Alex, I just wanted to ask a question about fleet cost, maybe dig in a little bit deeper on just the Americas side of things. I think you reported $876 million of expense there. I know you’ve called out the $81 million, you’ve called out the $195 million, which to me kind of gives us around a $600 million number of expense on the 450,000 cars, which to me suggests kind of a fleet cost number of around $440 or so a month. Can you help us understand like what else is in that number and maybe what the base level of depreciation is without the adjustments that you’re kind of running through for the EVs? And then just help us understand maybe the ICE rate versus the EVs that are left in the fleet rate?
Alexandra Brooks: Sure. Let me unpack it a little bit for you. So, you’re absolutely right. So we had $969 million of depreciation expense for the quarter, of which $195 million of that was related to the EV held-for-sale charge. So, on a per unit basis, it was $592 all-in and $119 was related to the EV charge. So, therefore, the net debt per unit we had, excluding those EV charges, was $473 per unit. And what is driving this increase in net DPU is our expected residual values at the time of disposition, as well as the increased losses we had on vehicles that were sold during the quarter. Just to kind of give an example of what we’re seeing in forward residual declines, if we just focus in on gross DPU, which excludes the EV held-for-sale charge and also excludes those losses on dispositions we had during the quarter, our gross DPU for Q4 2023 was about $315 per unit.
It went up to $423 per unit this quarter. So, an increase of just over $100 quarter-over-quarter. In terms of the impact we saw on forward residuals on that number, if we have a vehicle with an average cap cost of $32,000, and the remaining holding period is about 18 months, and we’re seeing about a 6% decline in forward residuals, we have to recognize another $1,900 or so of depreciation over our holding period for that vehicle. And that equates to about $107 per month. So that’s what we’re seeing in forward residuals, and that’s what impacted our quarter. As a reminder, our depreciation methodology is a combination of third-party data source as well as our own sales experience that drives our forward view of residuals. So, that’s what we’re seeing for the quarter.
In terms of ICE versus EV fleet and the differences between those, EV vehicles continue to be a higher depreciating vehicle for us than our ICE vehicles. Again, as we continue to de-fleet for the 20,000 EV vehicles that were remaining in inventory at the end of the quarter that are determined to be held for sale, we’ll continue to see improvement on that. But the residual decline we saw during the quarter on forward residual values was relative to both ICE vehicles and EV vehicles. So it’s not a problem solely related to EV vehicles.
John Healy: Thank you. And then just one follow-up question for me, just kind of big picture thinking on the fleet rotation. Understand there’s some things to do there and it takes time to rotate that fleet. So, that’s what I was hoping to ask you, is, is this something that you think takes nine months to rotate the fleet before it’s ideal? Or is this more of like an 18 to 24-month dynamic that we’ll have to be thinking about to get the fleet to the ideal position where Hertz would like it to be?
Darren Arrington: So, John, this is Darren. So the fleet rotation, I mean, based on our holding periods will take us into 2025. We look at it more like an 18 to 24-month rotation on our fleet to get it really cycled through 100%. Obviously, we’re going to make progress every month and every quarter. So, as we look at the pre-owned cars that we bought at peak values, over the last couple of years, those will come out and most of them will be gone by the early part of 2025. Some other new cars that we bought at peak values will take a little bit longer to cycle through. But what we’re seeing really on the rotation is the ability for us to get a better lower cap cost vehicle into the fleet. And so that progress will happen consistently through the period. And the amount of cars that we’ll have left to rotate will diminish in a significant way as we get into 2025.
John Healy: Thank you so much.
Operator: Thank you. And our next question will come from the line of Lizzie Dove from Goldman Sachs. Your line is open.
Lizzie Dove: Hi, good morning. Thanks so much for taking my question. Just wanted to go back to the liquidity point. The cash burn was much higher than expected this quarter, and some focus on the equity cushion in the ABS and potential injection of cash there. I believe there’s also kind of a debt holiday you had over COVID, which you now have to pay. So, could you just walk me through in a little more detail kind of the moving pieces in terms of how to think about cash flow for this year and the liquidity piece a little bit more? Thank you.
Alexandra Brooks: Yes. Sure, Lizzie. So, you are — on the ABS, let me maybe start with ABS cushion. So we have sufficient equity cushion today. We did at quarter-end and we do today. As a reminder, the way the ABS depreciation works, it’s at a rate of 1.67% per month. So, we’re making payments in at 1.67%, which exceeds our historical market depreciation rates by about 40 basis points a month. So, in a flat residual environment, we expect to be building up additional cushion of about 40 basis points per month. So, where we’re sitting today, we’re comfortable, and we don’t anticipate a required funding event in the foreseeable future. So that’s what we’re thinking about ABS. In terms of liquidity and cash burn, we’re laser-focused on our liquidity and we are understanding the cash outflow that we had during the first quarter.
