Prepared remarks
Welcome to Hertz Global Holdings Second Quarter 2025 Earnings Call. I would like to remind you that this morning's call is being recorded by the company. I would now like to turn the call over to our host, Johann Rawlinson, Vice President of Investor Relations. Please go ahead, sir.
Good morning, everyone, and thank you for joining us. By now, you should have our earnings press release and associated financial information. We've also provided slides to accompany our conference call, and these can be accessed through the Investor Relations section of our website. I want to remind you that certain statements made on this call contain forward-looking information. Forward-looking statements are not a guarantee of performance, and by their nature, are subject to inherent risks and uncertainties. Actual results may differ materially. Any forward-looking information relayed on this call speaks only as of today's date, and the company undertakes no obligation to update that information to reflect changed circumstances. Additional information concerning these statements, including factors that could cause our actual results to differ is contained in our earnings press release and in the risk factors and forward-looking statement sections in the filings we make with the Securities and Exchange Commission.
Our filings are available on the SEC's website and the Investor Relations section of the Hertz website. Today, we'll use certain non-GAAP financial measures which are reconciled with GAAP numbers in our earnings press release and earnings presentation available on our website. We believe that these non-GAAP measures provide additional useful information about our operations allowing better evaluation of our profitability and performance. Unless otherwise noted, our discussion today focuses on our global business. On the call this morning, we have Gil West, our Chief Executive Officer, who will discuss operational highlights and our fleet. Our Chief Commercial Officer, Sandeep Dube, will then share insights into our commercial strategy followed by Scott Haralson, our Chief Financial Officer, who will discuss our financial performance and liquidity. We are also joined by Darren Arrington, our Executive Vice President for Revenue Management who will be available to answer questions during the Q&A session. I'll now turn the call over to Gil.
Thank you, Johann, and good morning, everyone. First, I'd like to thank the team at Hertz for their hard work and dedication over the last quarter. Our people continue to lead this transformation, driving execution, improving operations and strengthening performance across the business. When we introduced our Back-to-Basics Roadmap last year, we didn't just make a strategic pivot under new leadership. We began a multiyear journey to reset the foundation of the company and position Hertz for the future. This transformation isn't about broad strokes. It's about driving fundamental change starting at the core of our business and rebuilding it from the ground up. At Hertz, we believe transformation is earned. We know that through disciplined execution and operational excellence, we will drive tangible results for our customers, our team members, and our shareholders. That's why we've been transparent about our goals, clear about our progress, grounded in the details that drive performance.
And this quarter, we delivered our best set of results in nearly 2 years. For the first time in 7 quarters, Hertz delivered positive adjusted corporate EBITDA, a nearly $0.5 billion year-over-year improvement. We exceeded our North Star target for depreciation per unit, achieved the highest second quarter retail vehicle sales in 5 years, and had our highest fleet utilization in nearly 2 years. These gains supported $2.2 billion in revenue for the quarter and underscore our ability to sweat the assets and do more with less. Importantly, we also improved our direct operating expense per transaction day despite lower year-over-year volume, a clear sign of growing operational leverage. What's behind that progress? The same three financial pillars we laid out at the start of our journey, disciplined fleet management, revenue optimization, and rigorous cost management, powered by our people, technology, and processes.
These are the fundamentals for long-term durable profitability. Let's dive deeper into these results and begin with the fleet. At its core, Hertz is an asset management company that buys, rents, and sells vehicles with the scale and brand recognition earned over more than a century of service. Our fleet is our most powerful economic lever. And we knew that any meaningful transformation had to start there. Over the past year, we've moved aggressively to rotate the fleet and realign the mix to better reflect customer preferences. That progress has proven core to building our new foundation, resulting in tangible financial impact, measured best through the results delivered by our Buy Right, Hold Right, Sell Right strategy. We achieved depreciation per unit of $251, well below the sub-$300 North Star target thanks to our early action on favorable model year 2025 pricing and a timely acceleration of our fleet rotation.
In the first quarter, we navigated a challenging environment marked by unpredictable travel demand and tariff developments. Confident in our strategy but mindful of the risk to demand and potential oversupply of fleet, we continued our fleet rotation in earnest, selling off older, higher depreciating vehicles into a strengthening residual market while fleeting up for our peak season. While the fleet size declined year-over-year, the quality of our assets improved, setting the stage for better unit economics as we complete the rotation. This approach proved effective, yielding strong cash proceeds and positioning us for more efficient growth. As a result, 80% of our U.S. core rental fleet is now less than a year old. This younger fleet is driving better reliability, lower maintenance costs, and a stronger customer experience, all while supporting lower depreciation. Looking ahead, we're applying the same disciplined approach to model year 2026 vehicles.
Despite supply chain-related delays, we're progressing in our negotiations, diversifying our OEM relationships, and maintaining flexibility as the industry continues to navigate any economic headwinds. Our refreshed fleet gives us flexibility to navigate this uncertainty. We also had our best second quarter for retail vehicle sales in half a decade, building on the momentum achieved in Q1's record performance. As we continue to elevate and expand awareness of our Hertz car sales channel, we partnered with Cox Automotive to support a fully digital transaction, meeting customers where they are and enhancing how we engage across the car buying journey. Their deep consumer insights through platforms like Autotrader will help inform and strengthen our marketing, pricing, and retail strategy as we scale. We're also seeing strong momentum in our rent-to-buy program, which continues to deliver one of the highest conversion rates, a clear sign that the try-before-you-buy model is resonating.
It combines the flexibility of our rental with the convenience of ownership and it's proving to be a meaningful driver of volume and customer satisfaction. Beyond that, we're expanding our technical partnerships and digital integrations to improve visibility, ease, and reach, ensuring our vehicles are present on the platforms where consumers are already browsing and shopping. These efforts are designed to drive greater awareness, stronger engagement and a seamless path from interest to ownership. Shifting gears, our revenue results were down commensurate with our decision to reduce our fleet size for the reasons I outlined earlier. Our intent is to earn the right to grow again as we complete our fleet rotation, and our unit economics fall into line. The headline on RPU is encouraging, essentially flat year-over-year when adjusting for car class mix shift, which was margin accretive as we peel back the elements that make up RPU.
We're making some great headway in demand generation and utilization, but we have work to do in pricing. We're staying focused on what we can control in this area and are encouraged by the market setup going forward. With tighter supply resulting from OEM supply chain disruptions and recalls, along with growing macro demand, our rigorous efforts to control costs also showed progress this quarter. Despite previously mentioned insurance and rent expense headwinds, direct operating expense per transaction day was down year-over-year, driven by a younger fleet, better supply chain leverage, productivity improvements, and tighter operating discipline. We expect these efficiencies to continue improving our P&L as we work towards North Star target of DOE per day in the low 30s. Given the pace of change in this transformation, we need to stay focused on how we make Hertz the most preferred rental car company in the world.
As we improve the core economics of our business, we're focused on how we leverage the strength and foundation to deliver an improved customer experience, putting our customers at the forefront of everything we do. Net Promoter Score improved 11 points year-over-year, and we are seeing stronger enrollment in our loyalty programs, but our job is to continue earning our customers' trust every day by delivering value, consistency, and reliability. That's what we've set out to do with our digital vehicle inspections. For over 100 years, manual damage inspections have caused confusion and frustration, creating unnecessary friction with customers. This technology is designed to bring much-needed precision, objectivity, and transparency to the process while improving our ability to proactively identify specific maintenance actions and drive further operational efficiency. We know change of this scale takes time, and we're listening, learning, and improving every day.
Our goal is to enhance the customer experience by removing friction, sharing transparency, and building trust not just for the 3% who experienced damage, but also for the 97% who don't. Before I hand it over to Sandeep, I'll just say this: transformation doesn't happen overnight, but by tackling the largest economic lever, the fleet, we first created the foundation needed to move faster and smarter. We can now empower our customer team to act with greater speed and precision at a local market level to capitalize on pricing and revenue opportunities and meet customer demand. There is still a lot of work to be done, but we're making measurable progress in our operations and doing it the right way for staying disciplined, controlling what we can and executing with precision to earn the right to grow. With that, I'll turn it over to Sandeep.
Thank you, Gil. Good morning, everyone. On the commercial side, we are focused on the foundational improvements that drive RPU towards our North Star metric of over $1,500. These efforts will directly enhance profitability and strengthen our position for future growth. In Q2, revenue was down 7%, in part due to, as Gil mentioned, running a smaller fleet down 6% year-over-year. In that environment, we built momentum on demand generation and utilization, but faced challenges with pricing. Going forward, we have a clear commercial strategy to unlock the value where we see significant potential. Our strategy begins with our ability to sweat our assets and drive more days for a given fleet size, which you've heard is yielding results. The utilization improvement in Q2 was driven by our world-class tech ops team, reducing out-of-sales vehicles, improved demand generation from our commercial and operations teams, and better alignment of capacity and demand, driven by our fleet planning and revenue management teams.
This utilization performance also supported a sequential improvement in year-over-year RPU even within a competitive pricing environment. Looking ahead, we believe pricing represents one of our largest opportunities to unlock further value. To capture it, we are executing against a detailed plan, starting with the transformation of our revenue management platform. Our current system, originally implemented in 2004, relies on outdated forecasting methods and batch-based optimization, lacks real-time data, and is not integrated with adjacent functions like capacity planning. It also fails to reflect localized market dynamics or respond to real-time demand signals, and is over-reliant on human judgment. To change that, we are several quarters into a multiyear partnership with Amadeus, a global travel technology leader, to replace our legacy RM system. The new platform will introduce sophistication like that seen in the airline industry, including real-time optimization, dynamic forecasting, and integration with adjacent systems.
Our next major upgrade remains on track for deployment at the end of Q3. The same rigor we apply to our operational overhaul is now guiding how we approach commercial execution at the local level. Mid-quarter, we launched new initiatives that empower and incentivize field leaders to drive profitability in their specific markets. Even in the early stages, we've seen value creation emerge from local teams identifying and acting on fleet and demand opportunities; as this effort matures, it will further enable more effective pricing and higher margin decision-making. Stronger demand generation, particularly in durable direct channels is another foundational lever. We saw a sequential improvement in direct website sales. A standout metric this quarter was a 100% year-over-year increase in new U.S. Hertz loyalty member sign-ups, accompanied by increased member booking activity. We also made progress on revenue diversification with sequential growth in both our off-airport and mobility business units.
At our last earnings call, we had expected firmer pricing as we stepped into summer. However, the Q3 pricing environment started challenged, but the conditions are improving. Domestic air travel returned to positive year-over-year growth in July, supply constraints from model year '26 uncertainty and manufacturer recalls are tightening supply, with recalls currently affecting approximately 2% of our U.S. rental fleet. For Hertz, U.S. leisure forward bookings are currently tracking ahead of planned lead capacity, demand strengthening, and supply is getting constrained. While the challenged second quarter trends continued through July, our U.S. forward bookings for August through the fourth quarter are quickly narrowing the gap to last year's RPD trends. While this is materializing later than expected, we are increasingly optimistic about pricing in the second half of the year. In summary, our gains in utilization are accelerating and we have momentum in our demand generation channels.
We have an actionable plan to address our largest opportunity in pricing through technology modernization, revenue management strategy refinements, and local market empowerment. Our focus remains on strengthening the core profitability of the business to serve as a path for future growth. Let me now turn the call over to Scott for a review of our financial performance and liquidity.
Thanks, Sandeep. Good morning, everyone. Great to have you on the call today. Let's start with our second quarter financial results. Total revenues were $2.2 billion, and adjusted corporate EBITDA came in at a positive $1 million, which was consistent with our guidance and an impressive turnaround from a loss of $460 million in the prior year, with a similar improvement in adjusted operating cash flow. It's a clear indication that we are making significant progress. While we've taken a moment to celebrate this milestone with the team, we're already focused on the next one, fully aware that continued progress will require sustained effort and execution. So a big high five to the team for the accomplishments so far, but now it's on to the next play. Looking at our key operational metrics, RPU was $1,400, down slightly year-over-year and flat when adjusted for our change in fleet mix. Vehicle utilization reached 83% in Q2, marking a 300 basis point improvement year-over-year.
This improved performance highlights our ability to optimize fleet deployment while maintaining service levels. While there is solid demand generation, execution of our pricing initiatives will unlock material margin expansion, underscoring the strength of our fleet strategy and a favorable residual value environment. DPU came in well below guidance at $251 per unit per month, exceeding our North Star target by 16%. This is a meaningful improvement, both sequentially and year-over-year. On a gross basis, DPU was around $280. Net gains on sale represented about $30 per unit per month driven by strong residual values achieved through our optimized disposition channels and our continued disposal of older vehicles. We expect gross DPU to remain under $300 for the rest of the year. We don't expect to have the same level of gains on selling in Q3 and Q4 due to an expected lower volume of sales than in Q2, so our net DPU numbers will likely be closer to our gross DPU numbers.
In addition to fleet, our operating cost management initiatives continue to yield positive results. Direct operating expenses or DOE declined 3% year-over-year on an absolute dollar basis. DOE per transaction day of about $36 improved sequentially and year-over-year, reflecting disciplined cost control and operational agility. Despite the reduction in capacity, SG&A remains well controlled through focused expense management and increased operational efficiency. Once again, we hit our internal cost targets, and we expect to continue to do so as we execute on productivity. While we have more work to do to achieve our North Star DOE goal, these results reflect the continued execution of our transformation strategy and our commitment to building a more resilient and profitable business model. Our liquidity at the end of June was $1.4 billion, a stronger position than we had signaled on our last earnings call.
This was bolstered by the delay of the Wells Fargo litigation resolution as the Supreme Court continues to consider whether they hear our appeal. During the quarter, we executed on a series of smaller transactions, which enhanced our liquidity and made efficient use of the balance sheet. We have no significant corporate debt maturities until the end of 2026. On the ABS side, we completed several business-as-usual transactions that were well received by the market, demonstrating continued investor confidence in our business model and asset quality. Our ABS facilities remain strong, buoyed by a positive residual value environment, with our ABS fair market values at about 110% of our net book values, resulting in an equity cushion of about $1 billion as of the end of June. For our forward outlook, we anticipate maintaining our fleet size at approximately 6% below 2024 through year-end, with flexibility to adjust based on demand signals.
Our model year 2026 acquisition process is delayed versus the typical schedule as the industry continues to navigate supply chain volatility; however, we are cautiously optimistic about where things will end up. The significant number of model year 2025 acquisitions and the corresponding economics on those vehicles give us a lot of optionality and flexibility. While the pricing uplift we anticipated from both our own initiatives and the macro environment is materializing later than expected, we are now seeing early encouraging signs in August. However, with a limited data set, it's too soon to extrapolate this fully into the second half of the year's outlook. For the third quarter, we expect our adjusted corporate EBITDA margin to be in the mid- to high single-digit range, which incorporates an overall muted revenue forecast relative to what we said on the last call. We continue to expect the third quarter to show our first positive EPS since 2023, which is another milestone for the transformation.
For the fourth quarter, we still expect a slightly positive EBITDA margin based on improved pricing due to macro vehicle supply constraints, recent pricing trends, as well as our own revenue initiatives. While the directional commentary on EBITDA still holds, the overall levels of positive EBITDA are slightly lower for Q3 and Q4, thereby pushing our full-year EBITDA levels to slightly below breakeven versus our previous estimates of slightly above. For the longer term, we are confident we are still on track to achieve adjusted corporate EBITDA of $1 billion by 2027. Overall, we remain committed to our transformation, and we are pleased with where the initiatives are tracking. There is a lot of background work on process, reporting, intelligence, insights, and the underlying platforms that allow us to continue to make better and better decisions. This is where a lot of critical work happens that doesn't always show up in the quarterly results.
However, we know these are key unlocks to future performance and we are excited to see the results of these initiatives. So again, proud of the progress to date and getting to our first financial goal of positive adjusted corporate EBITDA, but now the team has tasted some success and has rallied around where we can go. Exciting times to come. With that, I'll turn it back to Gil for closing remarks.
Thank you, Scott. To reiterate, this quarter, for the first time in nearly 2 years, we delivered positive adjusted corporate EBITDA and almost a $500 million year-over-year improvement. Alongside record retail vehicle sales, stronger DPU and meaningful gains in utilization, customer satisfaction, and cost efficiency. These results show we made real progress and are just a stopover on a longer journey. We are clear-eyed about the work still ahead and just as confident in our conviction about where we're going. Hertz has the scale, brand, and operational expertise to lead again. With sharper operations and a world-class team, we're building a business that's not only executing against the North Star metrics but positioning to lead in the next era of mobility. And we're focused on getting it right. Our playbook of disciplined execution and bold transformation go hand in hand. Our momentum is real, our vision is focused, and our team is united in building the company fit for the future without trying to jump ahead of it. With that, let's open it up for questions. Back to you, operator.
Questions and answers
Our first question will come from Chris Woronka with Deutsche Bank.
Gil, maybe we could start off with a very kind of a longer-term question, that would kind of be how you guys envision kind of in the future of AVs and robotaxis and things like that?
Yes, thanks for the question, Chris. Hertz definitely has a significant role in the future of autonomous vehicles and robotaxis. My team and I understand this space well, and the technology is effective. Road safety will see marked improvements with autonomous vehicles. I believe that as the cost of autonomous vehicles decreases, the economics will change significantly. We have a vital part to play in the future of mobility, and forming partnerships is inherent to our business. The robotaxi market represents a vast opportunity, and it's not solely about winning. We are among a select group of companies equipped to be key players in this area. We have a well-known brand, a global presence, a commitment to operational excellence, advanced maintenance skills, and extensive fleet management experience. Additionally, we have expertise in managing electric vehicles, as the majority of autonomous vehicles are likely to be electric. We also have the infrastructure and, more importantly, we are asset-heavy, which gives us vehicle financing capabilities. Ultimately, managing large fleets of vehicles is our core business, and I see that as the essential foundation for the autonomous vehicle and mobility landscape moving forward.
Okay. As a follow-up, I was hoping we could maybe dig a little bit deeper into the RPD. And I know you like to sometimes look at it more on an RPU basis. But just on RPD and kind of what was printed in Q2 and your commentary, is there any way to break it down how much of that is mix versus kind of what's been going on in the market? And do you think that breakdown or split is applicable to the back half of the year as well?
Yes, Chris, thanks. This is Sandeep here. I know you said we like to focus on RPU versus RPD. Let me actually first start with RPU, and then I will get back to your question around RPD for sure. So just overall, revenue is on an encouraging path, right? Q2 had a sequential improvement in year-over-year revenue by 6 points, while also improving RPU by 1 point. We manage our revenue with a focus on our North Star metric of RPU, balancing RPD and utilization at the local market level, similar to what the airline industry does where RASM is the key unit revenue outcome, balancing yield and growth. So that's how we manage it all. Now when you break down Q2 in itself, RPD for us in isolation was down about 5% and would have been about 2 to 3 points better normalizing for change in fleet mix. Now we all know the market was pretty challenged in Q2 overall. And I'd say the overall market pricing was down mid- to high single digits.
There is a lot of work we've done in terms of improvement in our segment mix, improvement in the way we drive our revenue management strategies and tactics to extract and monetize more from the demand that we were generating. So I'd say we were able to overcome a decent bit of what was happening in the marketplace through the foundational improvement of how we monetize demand. I think looking ahead, as we talked about a few minutes ago, I think the biggest opportunity for us on a year-over-year basis is going to be how we price, right? We have a pretty antiquated revenue management system. It puts a lot of load on our revenue management system to make the right calls. Over the next few quarters, I know this is a multiyear journey, but it will be material in terms of the year-over-year accretive nature of what we are trying to do here. So I'm super excited about the journey forward, and so is the entire commercial team here.
Your next question will come from Ryan Brinkman with JPMorgan.
I didn't hear much discussion of recalls in your prepared remarks and your utilization rate was very high during the quarter, which would be hard to achieve in the current recall environment. So I'm curious if you might have been disproportionately less exposed to the vehicles that were recalled or maybe the younger nature of your fleet now post rotation might have left you less exposed? Or just how recalls you think impacted the quarter and then what your outlook for their impact might be going forward?
Yes, thanks. I'll take that, Ryan. Thanks for the question. Yes, I think a couple of pieces to think of. First of all, for the quarter, for Q2, we really didn't have much of a headwind for recalls. It's really Q3 is where I think we're going to experience the impact. As Sandeep mentioned, we're about 2% of our vehicles currently on recall. That's about 1.5 points higher than normal. Let me say that to kind of give you a sense of that. So we've seen a rash of recalls as we've entered the summer period. As you know, when a vehicle is on recall, we don't have the ability to rent it. But I think I would say in terms of how we've been managing this, just to put it in perspective, our tech ops team, first of all, is the best of the best. They are very proactive to identify and mitigate any upcoming vehicle recalls before they result in a vehicle out of service. Much of the impact we see today is where an OEM does not have the fix for the recall developed or the parts aren't available. Not all OEMs are created equal in this respect, right? So mix is an important part of it. But you're right; I think the younger fleet also has less exposure to recalls in general.
Okay. Great. And obviously, great performance on depreciation per unit during the quarter. Thanks for the breakout of how much of the gains on sale contributed and how we might expect that to go forward. But I'm curious about the contribution from the higher prices achieved by selling more through the vertically integrated retail channel. Like how much of the higher sales volume at retail, the second best in 5 years, was driven by a higher level of dispositions generally as maybe you were more successful in securing 2025 model year vehicles earlier because you're reducing the size of the fleet year-over-year versus how much was maybe driven by some initiatives on your end, perhaps structural in nature to drive a higher percent of dispositions through retail going forward?
Yes, thank you. I think it starts with our strategy, first of all, because that frames out all the actions we've been taking to drive our depreciation down, and that includes the core of your question too. We have been really focused on trying to develop a cohesive end-to-end strategy. We call it internally Buy Right, Hold Right, Sell Right just to frame that out. Each of those pieces have a lot of depth to them. As we've been executing the strategy, we recognized early that we had a lot of fleet headwinds, and the team has done an amazing job turning those headwinds into a competitive tailwind. It's part of our fleet rotation strategy. But also, as we bought vehicles in 2025, we tried to align our buys with the mix that our customers book to as closely as we can. We were really rigorous and far more analytical about our approach to the buy-side economics with an eye towards when we sell the vehicles.
Our objective is also to refine our hold period to optimize our depreciation and return on those assets as well. On the sales side of the equation, it's really important that we get more net out of what we're selling. It's retention value that we're trying to manage from when we buy the vehicle to when we sell it. When we sell it, how much we sell it for is key in that. The retail channels are the most accretive in that respect. So that's where we're leaning into. We've had partnerships, and we have our own internal car sales website, of course, that's a primary sales channel. The team has done a great job working to digitize that now. The partnership model has also been very helpful to open up that. We also work to understand what best-in-class performance looks like in terms of net return on the vehicles and how to reduce reconditioning costs and those types of things. Ultimately, we try to solve for a higher net out of what we're selling.
All that's really the end-to-end piece. It's also worth noting that we're mindful of seasonal demand in the rental business. We did lean in during the quarter to take advantage of a strong marketplace in vehicle sales and continue to work towards accelerating our fleet rotation to sell out older, higher depreciating cars, which is helpful. But even with that, we were able to pick up some good gains when we did that. So part of that is market as well in the market dynamics on the gains, but then it's also all underpinned by the strategy of our fleet team.
Your next question will come from John Healy with Northcoast Research.
Gil, wanted to ask a little bit more on the fleet side of things, particularly as you discuss the relationship with Cox Automotive. I've always thought about them as more of on the wholesale side of things more so than retail. So I was just hoping you could explain kind of what you're doing with them and how those cars are getting retailed if it's to dealers or it's direct-to-consumer? And does this represent maybe a departure or a change in the relationship that you had with Carvana?
Yes, no, thanks. Great question. First of all, Cox is a wonderful partner. I'll start there, known them for decades. In fact, even when I was a kid, I would go buy Autotrader, when I was 18 years old to look for cars to buy, so I've got tremendous respect for the company. As we partnered with them, what I will say is in terms of retail sales, the opportunities we have with them is one I mentioned earlier. We're working on the digital transformation of the sell experience. Rather than the traditional model of selling cars, putting them out on a retail lot, coming in, back and forth on price, reaching a deal and having to paper that up, we've worked with Cox to digitize all that. This improves the customer experience and allows us to open up a much larger market of car sales that doesn't require a physical footprint at lots. We can advertise and transact digitally then, which really opens up the opportunities for us.
That's the ultimate objective. Our rent-to-buy program also plays a role in that where you can rent cars, experience them, and then we can transact. All those things are geared around that. The other thing is Cox has done for us is on our pricing strategies. They've got tremendous data, of course, wholesale, but also retail data because they've got a lot of dimensions in the retail space. They've helped us leverage AI pricing so we know at a make, model, trim, market location level, what the retail market is and what the elasticity curve is in terms of price and time to sell the vehicle. We ingest all that into our systems to price vehicles optimally. They're a great partner, and there's a lot we're doing with them.
Great. Sandeep, I wanted to ask a follow-up question. I believe you mentioned that RPD performance indicated pricing was down in the mid- to high single digits industry-wide. However, it seems that Avis's pricing was a bit lower or perhaps slightly better than that. Given this perspective, does it imply a significant change in your observations regarding Enterprise, or could you provide some insight on that?
Yes. When we examine year-over-year pricing for a specific brand, we must consider the strategies employed last year compared to this year. That effect is also significant. Our primary focus is on revenue per unit, which involves balancing utilization and revenue per day at the local market level. Our operations this year differ from last year's execution, which is evident in our revenue per unit performance. I'll stop there.
Your next question will come from Stephanie Moore with Jefferies.
I wanted to follow up on maybe the updated EBITDA outlook for the full year. And if you could talk a little bit about what drove the slight adjustment of going from maybe just slightly below breakeven versus slightly above before.
Yes, Stephanie, this is Scott. I'll start. I'm sure Sandeep and Gil want to chime in too. But I think what we're really talking about here, we kind of hinted at this in the prepared remarks, was that in our base assumption really through the summer and into the back end of the year was based on a certain curve of pricing moves. We did see a bit of a delay in that. Honestly, the Q2 pricing, as we talked about, wasn't as strong as we had hoped, but we're starting to see cracks in that as we head into August and into the meat of the middle of Q3 and into Q4. What we're talking about here is that, that sort of delayed pricing move has caused the math to come down slightly. We're just revising the volume of what we thought around pricing and total revenue for the back end of the year. Sandeep kind of hinted to a lot of the green shoots that we're seeing that give us a little bit of optimism. But like I mentioned, limited data set so far, so we're not ready to extrapolate that fully into the second half of the year yet.
Could you provide your insights on the overall demand environment you experienced in July and so far in August? Additionally, any comments on forward bookings that indicate the health of the overall travel market would be appreciated.
Yes, this is Sandeep here. I'll cover that. If you look at the segments that had shown a lot of decrease in the first half of the year, I'm referring to corporate, government and the high RPD inbound, U.S. inbound segments, those were on a declining trend through the first half of the year for reasons we all know. Those segments plateaued out in June. Since then, we've seen improvement in all three of those segments. The corporate segment was down mid-single digits, but we saw a good 3 to 4 points improvement in July from a demand perspective. The government sector also plateaued and saw about a 5-point improvement in July. Inbound segment, we've seen positive demand from APAC and Latin America, and we actually saw some improvement in EMEA in July as well. Net-net, inbound was actually positive by 1 point to 2 points from a demand perspective in July. The trends we look at for the early part of August continue to improve.
The demand profile continues to improve. As for forward bookings, we're booking ahead of our planned fleet capacity, indicative of improving demand and changes in our RM strategies. Overall, I'm increasingly optimistic, but we need to see more progress. So to put that all together, the demand environment is optimistic, stable, maybe a little bit better. As we noted, the pricing environment is a little bit worse than we had expected, but pricing has shown a delay in improvement versus worsening. Expectations for the used price environment around vehicle gains and DPU are just a bit stable overall.
Your next question will come from Federico Merendi with Bank of America.
I just wanted to ask you a question regarding liquidity. Could you help us understand the bridge from current liquidity levels to the end of year, given that the second half of the year is a little bit weaker than previously expected? And also, could you give us some more clarity or early comments for 2026, given the potential $800 million, $900 million headwind from the debt repayment and the Wells Fargo liability?
Okay. Let me start here in '25. Yes, I mean, slight revision downward in the back end of the year, but we will be cash flow positive in the back end of the year. We expect that to be the case as the business gets better and produces better operating cash flow. The fleet ins and outs in the period are different in the back half than the front half. We expect to end the year with a sizable liquidity balance. I'm going to stop short of predicting the balance just given there are a number of components that may be in and out. The larger point is that we're beyond the levels of liquidity that caused concern in the front half and even last year. The business is in a better spot today. We'll think about liquidity as sources and uses of what the business can produce, what our obligations are, and how we think about the continued fleet rotation. All these inputs will drive where we may end up at the full year.
So I'm not going to predict an outcome. But you will see a higher cash balance as we run through the year in preparation for 2026. Regarding 2026, the debt maturities regarding the Wells Fargo liability have not been resolved as the Supreme Court continues to consider whether they will hear our case. We've earmarked funds for that internally. We mentioned on the last call that we would end up with over or around $1 billion, and we have exceeded that target here, excluding the Wells Fargo potential. We have flexibility to address the 2026 maturity. It's a December 2026 maturity. We have a lot of flexibility with our cash production and within our capital markets activities that are possible for us. We had an ATM that we launched in May of last year that we didn't execute on in the quarter. We have that capability as a strategic opportunistic capital raise possibility and other mechanisms that we have today.
I just wanted to ask a question on the RPD and DPU. So DPU came down nicely, and part of that, from my understanding is the fleet mix changed. How does that fleet mix change impact RPD as well? Because I'm thinking that if you downsize the kind of vehicles that you have in your fleet, I would assume that consumers won't pay the same RPD for those vehicles.
Yes. I think the direction we are going here is ensuring that customers have a certain booking behavior and that the best decision for us is to look at this from an EBITDA perspective. If we buy the right car class mixes that match up with customer booking behavior, that's a better outcome financially. The metric that gets impacted in that strategy is, of course, RPD because you're absolutely right: the per-day rate that a consumer pays for a higher-class vehicle or a larger vehicle is more than that of a smaller vehicle. But net-net, financially and economically, this is a better decision for the organization, and that's why we have aligned in that direction. We are prioritizing EBITDA over RPD and making that decision.
Your next question will come from Ian Zaffino with Oppenheimer.
This is Isaac Sellhausen on for Ian. I was just wondering if you could provide a quick update on Dollar and Thrifty. Maybe if you're seeing any type of trade down to those brands or higher growth in them? And then maybe as a bigger picture question, is the goal still to drive higher rates in those brands?
Yes. Our goal is to drive higher ARPU for every brand, right? So that's the objective as an organization. What we've actually seen, and this is based on the hard work the entire organization is doing, is that our mix of our premium brand, Hertz, is actually the one that's growing, and that's where we want to keep going. That's the part of the business that is more margin accretive and represents the premiumness of the Hertz brand. That being said, Dollar and Thrifty have their place because there are consumers that need that good combination of value and experience. We'll always have the Dollar and Thrifty brands that cater to that consumer base. Overall, as a business, we have shifted more towards Hertz.
Okay. And then as a quick follow-up, just on the 2026 year buys. Obviously, a lot going on in tariffs and supply chain delays. When would you typically be making those forward vehicle purchases? And then any thoughts on the anticipated DPU for those as well?
Yes, thanks, Isaac. The model year '26 vehicle buys are starting to build momentum after being delayed due to OEM supply chain disruptions. We're remaining disciplined to ensure we achieve the necessary economics to sustain our North Star DPU target and mitigate any residual value risk in a tariff type environment. We're pleased to see where the unit economics and volumes are beginning to line up for the model year '26s. While it's been delayed a number of months, I think everything is building momentum on that side now.
Your final question will come from Dan Levy with Barclays.
I wanted to first ask about your views on future fleet size because we've had some fleet shrinkage here, and I know that that's more strategic than anything else. But how much more do you think you need to shrink the fleet from here? And then how does that play into achieving your North Star target on DOE, given you're not going to have the same scale benefits with a smaller fleet? Can you still get to that low 30 DOE? And what's the timing on that?
Yes, great question. I'll just start by saying we want to grow profitably, start there. We've had to shrink the fleet to grow again because the fleet itself was the biggest headwind we had. We had to rotate it through and get to our north star targets. We can now empower our customer team to act with greater speed and precision at a local market level to capitalize on pricing and revenue opportunities. There is flexibility to grow as we move forward. We want to make sure we're creating multiple channels of revenue growth to grow the fleet and our profitability. That's the kind of underlying strategy. I think we will keep the fleet down similar amounts as what we saw in the quarter through the year-end.
Okay. Great. Second is a question on balance sheet and cash. We saw that you issued the ATM last quarter but didn't actually execute any stock. Could you just explain the plan on equity issuance? And then maybe a bigger picture question. You're sitting on $0.5 billion a year of non-fleet interest. The challenge is that there's still maybe a ways to go before you're hitting free cash flow breakeven and can start to pay down some of that non-fleet debt. What is the plan to deleverage the non-fleet debt?
Yes, Dan, great question. The first step in the transformation is getting the business to produce operating cash flow, positive free cash flow. That's the first step in the deleveraging plan, and it will be a key contributor. As for utilizing equity in the business, equity will play a role. We talked about the ATM we launched as our first foray into using equity as a long-term way to deleverage. We will chip away at it. It's not going to happen overnight, but as the business improves, you'll start to see changes to reduce that non-fleet corporate debt.
This concludes the Hertz Global Holdings Second Quarter 2025 Earnings Conference Call. Thank you for your participation. You may now disconnect.