Q3 2020 Earnings Call

Good day, and welcome to America third quarter fiscal 2020, investor call and webcast.

All participants will be in listen only mode.

Do you need assistance, please signal a copper and special is by pressing star keep all the icy roads.

After todays presentation are being opportunity to ask questions.

Please note that the event is being recorded.

I'd now like that certainly conference over to Mr. Sebastien Reyes. Please go ahead.

Good morning, Thank you for joining us today welcome to the Americas third quarter fiscal 2020 investor call.

Before we begin I'd like to remind everyone that certain of the statements during this call including without limitation.

Statements regarding revenue expenses income and general growth of our business may constitute forward looking statement within the meaning of the safe Harbor provisions of section 27 eight of the Securities Act in 1933 as amended and section 21, each of the Securities Exchange Act of 1934 as amended.

Forward looking statements.

Inherently subject to risks and uncertainties, some of which cannot be predicted or quantify.

Certain factors could cause actual results to differ materially from those projected.

For a discussion of the risks and uncertainties that may affect Americas business and future operating results. Please refer to form 10-Q for the quarter ended December 31 2019.

Which is on file with the U.S. Securities and Exchange Commission.

I'll now turn the call over to Joe showing chairman of America.

[noise] good morning, everybody.

We continued to build our business in quarter three basic still move business remains solid.

We were.

Able to continue to grow units rented in our self storage business.

Expenses, however have bumped up.

Okay bid on some building maintenance and personnel are higher than absolutely necessary.

We are tightening up on these as they have outpaced revenue.

As the press release indicated we saw significant decline a rental last mile delivery services.

Over the Christmas Rush.

Amazon pleaded up with more dedicated trough.

We expected this but we were one cycle off on the timing of it.

We redeployed our equipment and increased consumer transaction.

So it's still far short of last year's revenue.

This last mile business has been tough for us to make a profit all.

We implemented more stringent customer qualifications this year.

Sure and because of that some potential customers.

Two other rental company.

You Hall is not in the business of managing dedicated fleet like for instance, Ryder system.

However, I plan to continue to earn last mile.

You're up business as opposed to.

The gating fleet.

This year up business is more part of fuels Corp.

I'm looking forward to continued strong rent up in the self storage business Q4, and hopefully you won 2021.

New storage product from U haul and many.

Theres continues to flooding the market and will ultimately cause over supply and some localized market.

Our when that occurs I expect our teams to be able to manage through it.

Business has been and remains very competitive.

It is U hauls plan to be the customers best choice.

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Our profits for Q3 year, you three our lousy and some of that we'll continue to four over into Q4.

We have a solid base and there is room to grow in many markets.

We remain focused on earning your continued support.

Our EBITDA.

I was down about 30 million in Q3, the rest of that money.

Has been invested in our future and we will continue to do so.

With that I'll turn it over to play.

Thanks, Joe.

Throughout my comments my comparisons are going to be for the third quarter of this year compared to third quarter fiscal 2019 and less.

Otherwise noted.

So yesterday, we reported third quarter earnings of $1.58 cents, a share compared to $4 in one sense a share.

I'll start off with equipment rental revenues decreased nearly 1% or about $5 million.

During the third quarter fiscal 2020, as Joe mentioned, we experienced.

Decreased corporate account activity or what many might call last mile business.

Excluding the decline in this type of business. We saw continued growth in all other equipment rentals, including our one way and in town market.

Well, it's unlikely that any offset of this business is going to be dollar for dollar.

I would expect to see some positive effect on trailing repair and maintenance costs.

And perhaps on the bond proceeds from the sale of equipment as a result of the tip of the decline in this in these last mile transaction.

Compared to last year at this time, we have increased the number of trucks and trailers in the fleet and we have more company locations.

Capital expenditures on new rental trucks, and trailers were a billion $161 million for the first nine months the fiscal 2020.

Paired with 882 million for the same nine month period last year.

While proceeds from the sale retirement retired equipment also increased.

To 591 million up from 500.

59 million last year.

Storage revenues were up $13 million, that's just over 14%.

Looking at are occupied room count as of December 30, Onest, where an increase of 45000 units occupy compared with the same time last year.

That's a 45 in percent increased in the.

Just a feeling rooms year over year.

Since last December we have added 122, no new locations with storage product.

From an occupancy standpoint, we continue to add new units faster than we're filling them, although that spread is narrowing.

So for example, this year we.

We added available rooms at a rate of about 18%.

And leave.

<unk> increased occupied rooms that are a rate of about 16%, so a 2% difference.

Over the last two years that spread has been between 4% and fix and a half percent. So it is trying to come in.

That's not from us.

Increasing the rate of rooms added it that's from us to increasing the rate of filling rooms.

Our all in average monthly occupancy throughout the third quarter fiscal 2020.

It was 67%.

Again this quarter, we took a look at our facilities that had occupancy over 80%.

As of December 30, Onest of this year, we had 705 locations or close to 60% of all of our own destroys locations that had occupancy over 80%.

Compared to last year at this time, that's increased to 48 location.

And the average occupancy at these locations was 90% up just slightly from last year.

Our real estate related Capex for the first nine months of this year was $600 million.

That's down from $639 million last year at this time.

And over the last 12 months, we've added 6.142 million net rentable square feet to this choice portfolio.

About 1.2 million of that came on line here during the third quarter.

Operating earnings at the moving and storage segment decreased $58 million to $62 million for the quarter and I'd like to touch on a few of them more significant expense items.

Depreciation expense associated with the fleet increased by nearly $17 million as we've continued to add new equipment to the fleet.

We are.

Nearing the normalization of the rotation program for our 26, but truck the should lead to a slowing in acquisitions.

Which will then result in a stabilization of the fleet depreciation for this model and the next 12 months or so.

Depreciation on all other assets, primarily storage location assets.

Increased by 7 million.

The dollars.

The increase in this category was a function of our self storage development.

To begin to recognize the economic depreciation from these projects immediately while the revenue begins to steadily offset them over time.

Repair costs associated with the rental fleet increased a $14 million during the quarter.

But the increasing the number of trucks in the fleet preventative maintenance costs have gone up in relation.

Additionally, during the quarter, we saw a higher count of trucks sold and being pulled out of the fleet for sale as compared to the third quarter of last year.

Resulting in higher repair costs as we prepare them for auction compared to the.

Third quarter last year.

Outside of depreciation and maintenance personnel costs represented the largest single increase in operating expenses.

[noise] other costs, including property taxes insurance expense utility cost or three the larger other items had experienced increases.

These four types of expenses, including personnel in.

In aggregate accounted for about $26 million at the operating cost increase Trent Porter.

In December we declared a 50 cent per share cash dividend that was paid in January.

And at the end of December cash and availability from existing loan facilities at our moving and storage segment totaled $659 million.

With that I'd like to hand, the call back to our operator to begin the question and answer portion of the call.

[noise] well I'll begin the question answer session.

Asking question You Me Press Star then one on your Touchtone phone.

<unk> Speakerphone, please pick up your handset before pressing the key.

<unk>.

For all your question. Please press Star then too.

This time of opposed momentarily to assemble Ross.

First question comes from.

George Godfrey C.L. King. Please go ahead.

Thank you two questions. The first one is on the last mile I understand the.

Below the has been challenging.

And so if I want to separate the profitability of that revenue in the revenue itself because if the revenue is going down in the loss of accounts than that to less profitable business I would've thought the margins would have gone higher that first question.

Okay I'll take that.

You know probably did but we still have the fixed cost without fleet.

Costs favorable so.

What happens is we ended up increasing our tumor transaction during that period.

So let's say the average consumer transaction is 100 dollar minor.

And the average.

Smile deliberate transaction it was about $1000. That's you know.

Rep number.

So what happened.

We need to tend to one or two.

Offset it when we didn't get anything like that so.

Oh.

You're exactly right if we had depleted.

If we hit which.

We would have seen that happen.

Got it Okay, we know fleet to handle their business the business.

And George this is Jason one other point to that is.

Some of the cost art aren't a from a time perspective.

Immediately on top of each other dove repair and maintenance cost and a lot of what the cost that would that come along with that business.

We recognize all later on the life of the of the truck that they use so when we have to fix them. After they bring them back when we prepare them for sale, we end up recognizing some more of the caustic.

No actually with those transactions, so it's a little disjointed.

Understood and then my second question is no Fedex was pretty clear about not delivering we're working with Amazon and Amazon themselves tried to push back on other.

Third party sellers from using them as well as they build out their own.

Lead of delivery service is there a concern that Amazon could take that sweet and start cutting into more.

The traditional moving in rental equipment that you.

Offer as well just want to see if you're thinking about Amazon, becoming more of a competitor not just losing them as a customer but more of a competitor. Thanks.

Well, yeah, I I was without kind of be too.

They did that I'll be glad that I'm, not an amazon shareholder that they're going to lose money right.

The these businesses are so different than utilization by equipment.

Where you have to have the equipment. This.

So gross.

Different.

And you saw that would.

Ryder system Barry just.

The company.

They exited the business precisely for those reasons not that they did comp.

They got a lot at all.

But you get in this pillar business.

Different.

Just different situation.

The managing a fleet I I'm sure.

That was not.

You Barry.

Fully occupied.

And to manage this dedicated <unk>, they're bringing on it.

It's a considerable I don't have actual.

Insight into their numbers, but I got yes.

They brought on that or will they will be.

Dressing everybody's system.

Just keep lead operate.

Understood. Thanks for taking my question.

Next question comes from Ian Gilson Zacks investment research. Please go ahead.

Like many of them Oh, we do look at the operating expense line.

The 8% team.

Oh, the ran cool call.

No it has gone up.

Significantly.

In the fourth quarter right now.

I understand.

Do you have had quite the a significant cost increases.

The ones that are going in my calculation.

And then just something like four percentage points.

All the old Ventura income no revenue rather.

Wednesday night operating expense line alone.

Yeah, there's great that.

For the fourth quarter.

I normally install right pretty the third and fourth quarter I have been close to <unk> expenses.

Operating expenses.

What are we looking at the current quota.

Hi, I'm not.

Going forward.

I'll, let you gotta prices to get back to a more normal ratio on expenses.

Hi Inn. This is Jason I'll start I'll start off with this.

One.

Hi, Your your calculation is is the same thing I'm seeing here as far as being up a little over a 4% operating expenses as a percentage of revenue.

So in this quarter.

I think the biggest flux wasn't necessarily a dramatic increase in expenses.

It was.

The decline in equipment revenue, whereas it it should have been a more of an increase in equipment.

Revenue.

The biggest cost drivers.

Our personnel costs for the <unk> for the quarter and we stopped.

To.

Make a decision there that there's some piece of that that is a variable there. There's some portion of that that is out in the field and and is probably in line with with revenues at this point.

On the repair and maintenance costs.

If you look at what we reported over the first three quarters.

The majority of the fiscal year to date, increasing repair and maintenance happened here in the third quarter. So just they'll happen in a quarter that we were down in revenue was when we we pulled a significant number of.

Pick ups and cargo dancing prepping them for sale and we saw some increased in in cost associated with that.

We have the continued drag from from property taxes utility costs and building maintenance.

Associated with destroys development. However that has been been lessening over time, it's still a bit of a drag but but it is better I think.

The drag from those about two thirds of what it was during the third.

Quarter of of last year so.

I in my estimation filled out the biggest driver of the.

The <unk> decreased operating margin is still on on the on the revenue line.

And Joe here I'll jump in I I still.

Oh.

But my comment which is.

We had some personnel them.

It's still remain.

The weren't absolutely no area.

Those should be better under rule.

At the same time.

Entry level wages are going up and country cool.

Legislatively at that.

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We have a lot of people it.

Oh really off pretty agreed to level.

Position, but we have no.

That's not a surprise and I have no excuses, we have to make those people more productive in a given our and or older field. They though.

The best bread and it isn't part of the <unk>.

We had personnel.

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In my judgment too strong of both our call center and with the right now.

Where she said throwing money at both those things.

They're very definitely areas.

I think we overspent, they're a little bit Oh, we should be able to.

Dial that back without.

Causing some unforeseen.

Disturbance in the whole operation.

But that that will take.

It'll be summer before that there.

Okay.

Fair game.

You make ratchet big <unk>.

Okay, you mentioned during the second quarter cool about the exit this from a a california.

The primary Los Angeles, and I believe Oh, Yeah, and also San Francisco.

Is that continuing with a truck 40 in that area are really managing for readdress that problem.

It's a master short it.

But the other way look at it is we need to rent more trucks in but it.

It's been a challenge for us too.

Rent more trucks in those areas.

Grow not from internal.

Migration they grow from external migration will people from the Pacific rim in Mexico.

When they arrive in that community.

We get a zero percentage of bringing or <unk> or truck that so.

That causes this.

Alan and.

We've done a brighter things to attempt to balances out we're.

We don't have a bounce on it I think everybody is experiencing the same thing.

There's there's not a magic elixir on that.

You have.

One of our truck is.

<unk> plant in California for the Britt Libre results in Los Angeles because.

You just you what you would like to add supply there, but yeah.

Quite do that with the trucks.

You know an amount that.

Would relate to the low so.

Until something.

Substantially changes.

And the political economic climate I would it back those places are going to be.

Sure of walking away right.

A weekend.

Deal without even as you know.

With.

Equipment that we use.

In the local.

Okay and return to the same store and we.

We have then it can you try to.

Fleet that up so that we.

That was strong enough revenue base.

To.

Keep all of our store active.

The one way or the outbound equipment.

It's going to be short there.

For the foreseeable future.

Okay. Finally, how do they you bought back when doing all the year over year basis, I noticed that the other.

Revenue line, but basically was like.

That's a 51 million news.

And that this.