Q4 2020 Earnings Call
[music].
Good day and welcome to the Americas fourth quarter fiscal 2020 year end Investor Conference call and broadcast all participants will be in a listen only mode should you need assistance. Please take away conference specialist by pressing the star keep followed by zero. After today's presentation, there will be an opportunity to ask your question.
To ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then too. Please note. This event is being recorded I would now like to turn the conference over to Sebastien Reyes. Please go ahead.
Good morning, Thank you for joining us today.
Welcome to the Americas fourth quarter fiscal 2020 year end investor call.
Before we begin I'd like to remind everyone that certain statements. During this call, including without limitation statements regarding revenue expenses income and general growth of our business may constitute forward looking statements within the meeting of the Safe Harbor provisions of section 27, eight of the security Dr. 1933, as amended and section 20 Onee of the Securities Exchange.
Jack of 934 as amended.
Forward looking statements are 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-K for the year ended March 31, 31, 2020, 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.
Good morning, Thanks for being on the phone with US much of what I have just say relates to the April may timeframe.
As you all know by now you hold as part of the critical essential infrastructure and the United States.
As such we remained open through the recent pandemic and we did the same in Canada.
There have been in our still evolving many blows to the U haul organization.
Whatever this is a disciplined group and we will work through matters as they become clear.
Obviously, our so new rental revenues were up substantially.
It has not yet returned to last years level, let alone the levels we planned on.
Today.
I have many locations and some markets for our sell through revenue and transactions or above last year.
However, this is still the exceptional pool.
So storage revenue.
Has held up through March April and May.
Yeah.
This revenue, though is below plan.
Goodwill deteriorate more.
This is an evolving situation.
Sales of moving supplies reflects our decreased moving business.
Competitive responses by our so storage competitors.
As to often been knee jerk reactions to lower rates.
With many markets arguably oversupplied.
We should brace for continued rate pressure.
Like other people in the vehicle business sales out of our fleet were and remain far below what is necessary tool to flegal.
This is tied up some cash.
Automotive automotive auto maker shutdowns and continued difficulty in restarting their enormous factories has created a temporary inability to acquire new fleet.
That missed a new fleet simply will not be caught up in the short term.
However, this largely.
Just kicks the can down the road and will increase capex sometime in the future.
We have experienced similar disruption in the past and basically no what to do.
Oh, we're at some point, we need the government to allow the economy to attempt to restart.
Many of our other expenses were largely fixed in the short term.
We have cut multiple expense categories.
But in no case commensurate with the drastic revenue declines.
Which we don't believe will continue.
Of course.
Sales teams across the continent has scratched hard for new business, we have certainly found itself.
We plan to hold all these new customers into the future.
As you've heard before we have a full complement of touch free consumer facing digital tools.
He served us well in our self move in self storage business.
Some of the customers who experienced these tools. These tools may prefer to use them going ahead.
We're leading the industry I believe in both our self move in self storage.
Touch free tools.
And this experience has validated our multiyear investment in development and a rule out of these tools.
Our vehicle maintenance teams remained on Dec over the recent months.
As a result, our fleet is fully maintained.
And ready for more use.
In summary, U haul personnel have experienced trauma before.
We have a committed focused management in operational team.
I expect we'll make the most recent events learn some lessons.
And make the best of the situation as the economy restarts.
With that I'll turn it over to Jason for some of the specific numbers per year end. Thanks, Joe.
Yesterday, we reported fourth quarter earnings of $6 in 24 cents a share of compared to four cents a share for the fourth quarter fiscal 2019.
In the fourth quarter of this year, we recorded an additional net tax benefit of $146 million, that's $7.45 per share as we recognize the effects of the krona virus aid relief and economic security or care Zack.
We feel another useful supplemental measurement is to look at our earnings excluding this item.
This resulted in adjusted losses for the quarter of $1.21 cents per share.
For the full year fiscal 2020, we reported net earnings of $22.55 per share.
In fiscal 2019, we reported $18 a 93 cents.
Also included in our fiscal year 2020 results was the cares act tax benefit.
Excluding this benefit our earnings per share for the full year in fiscal 2020 were $15.10.
We have a reconciliation of this in our press release as well.
Before I go into some comments on the business I want to provide some additional color regarding the cares act tax adjustment that I just mentioned.
The cares act allows companies with net operating losses to carry those back up to five years and it also made some other technical corrections.
That weve avail ourselves of.
We have net operating losses that have previously been recorded in our deferred tax provision assuming that we would use them in the future at today's current 21% federal income tax rate.
These tax losses were generated largely from our reinvestment activity is used in growing the business.
With the care Zach now.
Which allows us to carry these losses back two years before the 2017 tax cutting jobs Act.
These losses are now value dinner and are being used at the previous 35% federal income tax rate.
It's this difference in rate that account for the majority of the unusual income tax benefit this quarter.
Isolated this EPS effect of the tax adjustments the can evaluate our performance with habit.
Now moving onto some comments on the business the equipment rental revenue decreased 2% or about $11 million for the quarter.
We finished the full year up $39 million, that's about 1.5%.
First some positives from the year.
We increased the number of retail locations as well as trucks and trailers in the rental fleet.
Also revenue for both our entire one-way markets improved across trucks and trailers.
However, the fourth quarter. These improvements were more than offset by a reduction in the volume of corporate account rentals.
Along with the decline in overall rental activity during the second half of March due to the colder 19 related state homeowners.
By eliminating some of the noise.
And our call the noise the last mile business decline.
The cobot 19 related decline and we did have an extra day. This February.
Our core moving revenues were closer to plus 3% in the fourth quarter and plus 2% for the year.
Revenues. This April for our self moving equipment have experienced an approximate 30% decline.
Looking into May the decline equipment rental revenues has been improving.
Capital expenditures on new rental trucks, and trailers were 1.374 billion for fiscal 2020.
Last year in fiscal 2019, we invested 1.163 billion.
While proceeds from the sale of retired rental equipment were 678 million that's up from 603 million in 2019.
Our initial projection for rental equipment capex in fiscal 2021 contemplates.
The decrease in box truck cargo van and pick up spending.
We are estimating just under $850 million, that's before netting any sales proceeds against them.
We're also projecting a reduction in proceeds from the sales of rental equipment.
Resulting in net fleet capex of approximately $460 million.
Just to remind everyone. This year that number was close to 700 million.
This projection assumes reduced sales in April and May do the constraints on auction locations from the colder 19.
Proceeds from the sale of rental equipment were down right around $40 million in April 2020, compared to April of last year.
Storage revenues were up over $12 million, that's about 13% for the quarter and for the full year, we were up 14% or $51 million.
The growth in revenues is coming from units the growth in revenues and units rented comes from a combination of occupancy gains that existing locations and from the addition of new facilities to the portfolio.
Looking at are occupied unit count at March 31st of this year compared to last year, we were up 49300 more occupied rooms.
This quarter, we took a look at facilities ahead I had occupancy over 80%.
As of March 1st of this year, we had 725 owns locations that's about 60%.
That were over 80% occupancy.
Compared to last year at this time as an increase of 48 locations.
And the average occupancy at the 725 locations was up just slightly at a little over 90%.
Our real estate related Capex for the year was $751 million, that's down from a billion $3 million last year.
During fiscal 2020, we added 5.800 million net rentable square feet about 1.2 million of that came online during the fourth quarter.
In April and May of this year weve option to slow the development of new self storage projects to preserve liquidity.
We will calibrate our capital spending based in part upon the evolving effects of cobot 19.
Operating earnings at the moving and storage segment.
Decreased by $34 million for the quarter, resulting in a loss of $21 million.
For the fiscal year operating earnings decreased by about $97 million.
To $472 million I wanted to go through some of the some of the expense highlights.
Depreciation expense associated with the fleet increased $13 million for the quarter $55 million for the full year.
As we continue to add new equipment to the fleet in fiscal 2000.
We are seeing the rate of depreciation increased begin to trend back down.
Depreciation on all of their assets, primarily storage location assets increased by 7 million for the quarter $28 million for the full year.
Thats largely a function of our self storage development.
Repair cost associated with the rental fleet experienced a $5 million increase for the quarter and for the full year were up $19 million.
With the increase in the number of trucks is a fleet preventative maintenance costs have gone up in relation.
Additionally, during the quarter, we we saw higher count of trucks sold.
Before the call the 19 shutdowns.
That resulted in higher repair costs as we prepare those units for auction.
Outside of depreciation maintenance other costs, including personnel property taxes.
Liability and property assurance and freight utility costs.
The items that generated the bulk of the increases.
In aggregate they accounted for about $13 million of the increase in the quarter and a little over $101 million for the.
Full year.
Towards the end of March and into April and May covert 19 has negatively affected our incoming cash flows through lower self moving equipment rental revenues.
Along with any or total reduction in equipment sales proceeds stemming from the closure of the commercial auto auctions.
However, cash and credit availability to moving and storage segment has remained strong.
At March 30, Onest, we had $498 million.
And at the end of April we had an excess of $400 million.
In May we've entered into a $200 million term loan to further strengthen our liquidity position in the short term.
With that I'd like to hand, the call back to Sean our operator to begin the question and answer portion of the call.
Thank you and we will now begin your question and answer session to ask your question you May Press Star then one on your Touchstone so.
If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed you would like to withdraw your question. Please press Star then too.
Our first question will come from Ian Gilson with Zacks investment Research. Please go ahead.
Good morning young.
I have a safe.
So.
The impact all the time.
That is that a book entry or can you actually claim cat.
Hi, This is Jason Hi, we are we have filed for.
Refunds.
Associated with the cares Act so.
For.
We've amended our fiscal 18, and 19 returns and those should result in while they resulted in refund request totaling $123 million.
For our fiscal year, 20 return, which we're probably going to file sometime around October.
We're expecting a refund in excess of $250 million.
We've also filed for a return of some cash that was.
Former payments that we made.
That.
Have we been applying against a operating income and that should result in about 109 million. So in total were looking at some somewhere north of 490 million in refunds.
So when might we expect to correct or [laughter] well.
Those were filed in April so if you were to give the internal revenue service. The 90 day service expectation that would be.
Sometime in August or September in the meantime, what we've done as we've worked out to deal with with several of our banks in our in our lending group.
Where we've essentially borrowed about $200 million against those refunds currently.
And then as we received those refunds, we'll we'll pay down that loan.
Okay, I mean given.
The.
Thats, a TV conserving cash.
Wouldn't it be a an advantage it to you to lease.
Trucks, rather than by them.
Well.
As you know he had we done both over the years that we've done a variety of leases we are.
Continue to explore that and.
I don't know the current status of where we are but we're going to still push for the best net cash.
Yes, net cost to us we don't yet see this is a situation where.
Getting 100% financing.
Is necessary.
There's still we're still optimizing that we'll see what Jason system. The same question short we are our basic borrowing program for equipment is the equity out is anywhere from zero to 10% to 30%.
So we're continuing to mix that.
The current liquidity position that were in isn't isn't something we're where we need distressed that we.
Our our fleet.
Our assistant Treasurer responsible for fleet has already reached out to our lending groups to speak to them about.
If we needed to borrow at a higher loan to value that option is available with many folks but right now it it doesn't have to get the top four list of things to do.
HM Okay.
The storage business.
I would've thought would have been let's vote Pollo, then look truck rental business.
Oh, particularly in places the fact that people are the things that was stolen.
At the as easily as they could have earlier.
So there's still already.
Not being impact as much as truck rental.
I think Thats, a fair thing to say in the short room yeah.
Over.
A bunch of people as you know are stressed the big percentage of the population so.
As things evolve here further willing to give some delinquencies are more move outs and it's you know we're of course doing everything we can do give terrific customer service to retain these people.
Tenants.
But you're right.
The people been impacted but the visibility that impact may be deferred.
And we'll have to see how that develops I can't give you all we don't have a forecast that's all that's a usable forecast.
And and again, we're going to stretch to try to keep these people in through.
Top quality service and I expect we will retain.
The vast majority of them.
Okay with with the fact that the sale of crop.
And that the segment all.
Moving new products into the fleet.
Couldn't maintenance expenses declined somewhat.
Well actually.
Probably not they probably will go up because.
Maintenance base basically varies linearly with the age of a vehicle so.
What will actually happen, we'll end up keeping some vehicles longer than we had intended to.
So their expense there repair expense per mile Ian will probably try to creep up.
So.
And that's been our experience in over the last 40 years as you can do what you want to but maintenance berries linearly with with the.
Hi Leach.
Which equates to age and and that we're going to see some.
Vehicles.
Not be.
Sold out of the bottom of the fleet because there is no market for 'em, we can rent the buying but they probably will bump.
Maintenance a little bit.
[laughter].
You It has declared bankruptcy.
That includes budget.
Have you noticed or do you think that this would probably help.
You hold truck rental.
Well actually the hurts organization is separate from the budget the budget.
Organization is connected with the Avis organization and they.
Last I saw were.
Very solvent they were out executing new financings at kind of a higher rate.
But we're not planning on.
Any big capital markets issues, if we have an advantage over our competitors right now it's because they are still reeling from this.
And they're not providing the level of service at the customer demands.
And weve doubled down on service.
And we're going to give the customer what they want in the hopes of retaining those customers or even perhaps gaining some more customers.
Okay and come back to Jason.
Did you say that say.
Cool was down 30%.
Okay.
Correct.
And they showed some strong.
I presume that they couldn't pay sequentially rather than year over year.
Year over year is down about half of what we sign in April so maybe it's trending somewhere around 12% to 15% for the first first half of it.
Okay, great that doesn't mean right. Thank you very much.
As a reminder, you asked a question. Please press Star then one our next question will come from Jamie Wilen with Wilen management. Please go ahead.
Hi, Fellas, sometimes necessity is the mother of invention and.
Glad to see that your ultimate or capital allocation program, sometimes it's good to plant the seeds, sometimes it's good to harvest.
Glad we're taking this pause to reevaluated and maybe just wanted to do expenditures are which in our harvest more the profits.
Oh.
What is your or is your plan for self storage as you move forward.
Well of course long term are committed to the self storage market Jamie.
Oh.
There's there's been as I've.
So kind of in the past.
Considerable expansion.
The product.
Specific markets and.
I I don't know where you live.
You can see whatever is in your area, but most of the country experienced a lot of new product.
And.
Much of that new product is still coming online.
So I don't think anybody really knows what's going to happen with demand.
We have a bunch of projects that are in process and will we will our plan is to complete them.
But.
So I think short term that.
We'll have more product come online and then it will.
Kind of.
Stopped coming online.
I don't know what's going to happen in the.
Overall industry, but I think that it won't be two different from us into a lot of new product is still going to come online and.
As I said in my prepared remarks, we'll probably.
Put pressure on rates because many of these people are new to the industry.
Arguably over financed.
And they're going to make no mistake for many people do which is now.
Your prices in the face of this and.
They're basically going to cut the throats.
I don't want them do.
Injure us in the process. So we're.
Doing what we can but there's going to be some rate pressure and I think that's going to.
Hello.
Evitable effect.
On.
Earnings for people because.
These projects are basically.
Huge fixed costs projects the variable cost is really.
Personnel utilities and property taxes so.
Oh, the nuclear India.
Pause in the self storage business would be my best guess.
Course, we don't intend to pause and were up even in March and April and May.
We have no intention of pausing renting up rooms, but were positive building bore up so so hopefully.
So little bit that works out well, but I I I don't think anybody has a real fix.
On whats happening I am in stores those in a store yesterday, we were at 99% occupancy.
The woman advantages it was saying God give me more rooms, I can rent more rooms, well I'm unlikely to go spend another million dollars and get her more rooms, I'm, probably going to just enjoy being at 99 for future years.
Okay. A couple of a couple of questions or what are your estimated self storage capital expenditures and [noise].
The current coming in the current fiscal year.
Jason do you have a number on that.
And we provisioned.
Pretty much what we spent in the previous year. So so this last year, we spent $750 million on that.
I would say that our existing.
I'll break it down into a couple of pieces so.
Deals into escrow for were down significantly from the prior year I think we have like 23 deals that we have sitting out in escrow we've pushed back the closing dates on those just to see.
How the environment reacts.
But acquisitions of new properties.
Fiscal 19 to fiscal 2000 or down.
About $320 million.
Now we have if we were to complete.
Everything that we currently have and would like to work on it and complete that number is a little over $900 million, but that's going to be spread out over several years.
So.
We have worked to take us it several years from now and we have been slowing the input so.
I think apples to apples probably are our pipeline of projects to work on is down probably about $350 million to $360 million from this time last year.
So your capex versus the 750 2020.
Do you expect it to be brought in 2021.
Well, it's it's Opportunistically, we went when we set out I kind of set out to a cash and availability plan that we could spend up to $800 million.
On the current capital plan.
And then that will get adjusted up or down based upon the availability of opportunities and what we're seeing right now where we pushed back or slow down about $110 million worth a depth of development.
So so that.
Slowdown over the next couple of months is probably going to.
<unk> lead to it the decline in how much we spend this year is gonna be spent at some point it just might not fall into this fiscal year.
Okay. Thank you many I'm just.
So what we're actually doing is we're completing everything we've got in the ground that we have concrete.
Not at all we're completing all that at this time and then.
No new starts.
Until we see where things are and you know everybody's guess moving back rationally on that.
Oh, just because.
We could sit on the property, we have a whole bunch of undeveloped sites.
Well, we can sit on those they're already baked into our current expense ratio in other words, the property taxes and.
That is hard you all baked into the capital costs, all baked into what you've been seeing.
So that will get no worse.
And we'll just see how this property that comes on.
Jason how many square we did 5.1 million last fiscal year, 5.8 point 8 million and I don't have affirmed number just here today, but we probably put in a million square feet.
Between March 31st and I'll say June 15.
Can be real close to that so those projects will come online and hopefully start running up.
So we have a lot that's.
You know what do we workloads near term gonna get completed.
And then we'll have other stuff kind of flowing on them.
Next three quarters, but we won't be.
Dealing with fire there so.
I wish I had a hard number I could give you, but I really don't I think what Jason So there's a limit.
Prudently, but what this is doing and it's been doing for some months as.
We'd already turned this down before we had the.
Pandemic and soon it takes a while for that train to slow down was that train slowed down though.
And we have an inventory that we can or you can build out or we can sit on.
We're not in a.
Disastrous situation as a shareholder you won't see.
Increased expenses, because they're all basically rolled into our current financing costs north down a property taxes.
And that those aren't going to change you know two or 3% or something not much.
[noise], Joe given that reach value.
Relatively fully occupied self storage.
So what do you said at a very high level and we obviously don't get credit for Oh facilities that do that as you say, we've got the or whatever the number was a six or 700.
So what do you said average over 90% what would be my thought Oh.
Hi, catching up 50 to 100 100 very productive facilities.
Rising full value for them.
Selling a package to the rights.
Who obviously you know.
Trade at very low yields borrow for very little and are willing to pay up for those properties.
And to be able to do that and then continue to reinvest in programs, where we have much greater upside.
Well.
I don't see it being under serious consideration at this time, it's bill a number of years before we did a real hard work up on that.
The.
Of course the.
Fly in new England, there is that.
All these locations, but two or three.
They are just their big in self storage. There also begun you move that's the.
Fly in the only mountain.
So.
I I don't think that near term there's much of a push to go try to do that but I'm aware of the more or less the concept in the where various ways you could.
Even read out the whole company.
That's not beyond the pale.
Oh.
So I wish I had a better answer for you I know more what the answers your looking here, but I really don't have the answer.
I would hope it looks somewhat in that direction to considered it.
In the near future Oh Man U box program, how did that fair within this whole process Oh once that profitable on the past fiscal year and what is your current outlook for the business.
Well, let Jason speak to profitability. It yes. It was profitable it was in absolute dollars and a slight improvement on on kind of our internal internally calculated margin number.
It did did what it was a plus this year and we've seen strong growth in revenue, even even during what's happening right now.
So I would say joining me on that but that's still.
A growth program. Unlike our self storage program is going up.
Its growth is going to outpace the growth of the truck rental industry.
And though we are we're continuing to.
Invest in that we believe it's prudent investments, it's not a huge drain on capital base.
Well.
We'll continue to invest there we think that.
We're.
Improving our position constantly.
We have a very good response from the customer.
It doesn't seem to be road or.
Oh.
You are truck rental business.
In a measurable amount I'm sure, there's some modest amount but.
Oh it complements it in some ways too so I think its.
Clearly a viable program it had increases all through the.
Last year in had increases in the last couple of months so.
No.
But it ought to because it's a growth program.
Just like self storage is should it should outpace.
The truck rental business and I would look work to continue to do so.
Okay, well so Joe you mentioned the corporate accounts were down 2020 them in the fourth quarter could you.
Detailed little bit about why and what's your outlook in that direction.
Sure we did a lot of business with Amazon.
It cost us more equipment damaged in the generated revenue.
Totally abusive situation.
We.
Amazon Wrench, very very many piece of equipment.
To contractors.
And actually Amazon personnel.
They're very abusive to equipment.
We recently reached an agreement with Amazon.
Where they would backstop the damage on that equipment.
And under the and then but those circumstances, we would rent to them of course during the period, where we.
Not meant to them.
They formed other business relationships and so.
That was the those people are losing or making money I have no knowledge, but we were losing money with Amazon.
And if if and to the extent, we do any of their business with them.
It will be where we can make a modest profit at the same time.
Oh, you P.S. and Fedex continued to do.
Business with us and they're both.
Pretty straight up organizations and.
Oh.
We make some modest profitability doing business with them, but.
Amazon was the elephant in the room and.
They were just simply.
During our equipment back so beat.
So we were losing money on the overall transaction.
Okay I only asked me your timing wise depreciation expense are moving forward or you.
Ah should be relatively flat 2021 versus 20, twond even numbers the reduced expenditures.
I do we're still going to see that we're still going to see depreciation on a little for both the fleet and for real estate increased to 2021, but I think I think the way that its hasn't each quarter right now it's been coming the rate of increase has been coming down.
So.
Based upon the current fleet plan I would suspect that it's going to flatten out.
By the end of fiscal 21 on the fleet side.
Okay. Thanks Fellas appreciate it.
Welcome.
Our next question is a follow up from Ian Gilson, It's actually investment research. Please go ahead.
Right. Thank you.
Automakers.
Hi, good problem.
And then essentially closed down most of their facilities.
And I, both some of them up to do all the work then making causal crocs.
If we get a second wave.
Or.
Hey, flattening out.
Instead of the declining.
Okay Yeah.
Okay kinda count of patients.
Where do you me Youre unit number.
Projections, Oh, well, let go down.
And if you would use the truck purchased in 2020, what does that due to depreciation.
Oh, that's a very complicated question.
To give you an accurate answer.
If the automakers.
Really close their plants in other words, they they get them started then they shut them down.
We will lose that amount of forecasted production.
Ordinarily we are not forecast to get a lot of production.
In the.
Last quarter of the calendar year.
We usually have heavy production now which is why we suffered.
For a.
A big lack of new equipment coming in.
So it wouldn't impact this.
Nearly as much as it has.
In the quarter, we're in right now.
But certainly within it would impact us.
And then what will happen he and his is that.
At some point you have to replace the vehicles. If we don't replace them. This year, we'll have to replace and the subsequent here.
So it's going to bump.
In some way the amount of money we have to spend.
In subsequent years, assuming our our customer transactions remain large enough to accommodate definitely I mean, it's not beyond the pale was that there could be a permanent reduction in the economy I see these numbers for every single market. There's markets that have been Savage you can figure out who they are if you watch the TV.
It's the politicians who simply.
Our enforcing some sort of in authoritarian stayed on the consumer in the consumer.
The shutdown totally dawn done on.
We go to another place like Utah.
Utah everybody's doing business, you Whos doing fine.
But they have a different.
Government orientation so.
I have no idea what will happen.
Other than revenue will decline if we have.
Another.
Partial or full shut down or the economy in the fall Marvel revenue will decline. There's no question about in revenue decline a bunch of expenses won't decline and profits will get smacked. So.
Oh of course Weve.
We do some pause but those costs.
Arms of the nature of 30 or 50%.
Which is what we saw business was up 30% decline overall I think Jason quoted 30, what percentage usage in April 30%, 30% in April So our expenses don't go down 30% or our depreciation actually went up.
So I mean, it's it's a it's a real negative leverage problem.
So.
We're not going to run out of cash but.
Such an event like that would slaughter profitability in the short run.
And this is Jason T T to your question about what do a due to depreciation just so far what's happened today, the with the cancellations of orders due to the plant shutting down.
Depreciation or probably continue that the increases will be.
Become less and less each quarter I would suspect towards the end of this year and then probably into the next fiscal year, we will see probably a decline in what we call gain on the disposal of equipment.
Because we're selling older units, you know with without buying the new pickups in cargo bands were holding that fleet longer than than we typically do.
So we will see the gain on the disposal of those units begin to trend down a little bit the longer that we hold them.
Okay, you said that the orders that hurdle.
It doesn't mean, you will have to reorder the later today.
Well, there's there's no way, we can they can't build that many.
And.
And until we can sell trucks, we can't afford that many.
So it's kind of.
Well, an unhappy coincidence they can't build them and we don't have any money to buy him because we can't sell the existing ones now we expect that market to improvement, we see signs of it and we're not.
You know frozen with period, but until we can sell the older units it seemed prudent for us to bring in new units and we're not going to do that.
So.
It's a it's anybody's guess informed and general Motors had been trying to restart their plants. If you follow in the press they get somebody test positive for Cove addition, the whole place home for there to.
Well I've never run automotive plant, but I can't imagine you're going to open it for a day shut it down for a day and get any production to speak of.
[laughter] last.
We can believe I correct I'm correct in saying that they told us they built to trucks for us.
That's not quite what you would call production. Okay. In other words, they do that like every 20 minutes normally.
So the volume of trucks that we would be getting this time of the years just.
Drastically cut and with with negative consequences as far as I can tell for all involved its.
It's got to be hurting the automakers, it's definitely hurting us.
And as Jason alluded to when we ultimately do sell these vehicles, they're going to sell for less because they're gonna be older and have more miles and and values very linearly with age in mileage. So we've continued to depreciate them. So we're not caught in a trap there.
So we continue to depreciation we try to watch it carefully because the last thing you want to do this find out your upside down your fleet.
So we are not presently upside down in our fleet, we don't intend to get there.
But we'll do that bye.
Veering, the depreciation rate if it circumstances dictate that.
Okay. Thank you Linda.
And our next question will come from Craig in men with Artisan partners. Please go ahead.
[noise] Hey, guys can you hear me.
Hi, Craig.
Hey, you know when issues with this business is always you're always trying to manage the fleet in certain locations because of your migration out of areas into other areas.
With the pandemic is that changes that created any problems with stacking up trucks anymore I mean.
Does that become another issue down the line.
Greg I'll try to take that certainly it has and it's changed the timing. So we'll just take students for an instance, ordinarily this time of year, we just speed.
Daily than just student lose.
But what actually happened is some of them went away entirely in some of them occurred.
Six weeks ago.
So.
Hi.
We can't quite sort that out.
To say you know what are we going to be down this weekend compared to last year, we know that the big schools are already I'll, let out and have been let out for some time, yet theres residual business coming through the schools are.
Now doing phased move out so the contacting students and saying everybody in.
X building or whatever has to move out on the 27th the may.
And and so that we see a little bump in transactions in that specific market. So it's caused a lot of dislocations.
We also this time of year see a lot of.
Second home type into school year thing and that again is real mushy.
I think here in Arizona most of the grade schools broke.
This last Friday so.
We would the little luck will pick up a little business, but how many people are going to go up to their second home I can't predict.
On the other hand, we got a bunch of people who had second homes.
You know, let's say in Maine, or New Hampshire, They got out of New York in Connecticut, six weeks ago.
So there's a whole bunch of tiny disruptions.
To say that that overall has put us any worse or a better situation I would say, it's about it's about normal amount of dislocated fleet, it's not gotten horribly worse, but that's that's a day in day out problem, we have as.
He is managing that to certain that you know I have some.
Optimists tier who think because the students are moving out in a smoother way that we get more business and I hope there right.
But.
This is very.
It's it's but its new to us some of the flows we recognize very well, but the timing is different and so.
How this will kind of work into the summer. It's I got no idea and then we're gonna have strange flows going into the fall because already at much of the universities have noticed that they're going to.
Move in at different rates and.
So that that even if all the covert and everything goes away in August we're going to have some.
A carryover effect so we.
Our certainly thinking of and trying to anticipate but we don't really know what they're going to do.
But yes, it's there's been a huge difference in where people move.
A very strangely we've seen more.
We've seen less disruption in long distance moves and more disruption in short distance moves.
And.
Maybe the short distance moves are more elective.
Maybe the long distance moves were totally need driven.
I really I I don't have a absolute.
Take on that but normally we do a phenomenal amount of short term moves short distance moves.
And there they're coming back up they're not where they used to be whether they'll come back up that.
Whether by the ended June this will be.
You know looking like little bit more like last year, I can't tell and as I said in my prepared remarks I. Some places are up over last year.
There you know these are people, making bonuses, okay, which of course I want to pay.
There there salespeople in their businesses up well it means there is business out there.
But if you get into.
New York, New Jersey, Connecticut.
Boston you know hang on its.
Those are what's happening there is.
Maybe I don't know, where you live but those areas there they've severely.
Shut down the economy in.
People are literally afraid Oh, you know I'm in Arizona in Arizona.
This week it almost seems like normal traffic.
Atlanta.
Let's come back well for us.
Northern Florida has come back well southern Florida still.
Yes in a struggle so there's a there's a lot of different activity. We're trying of course to capitalize anytime we see a flow in our favor we're trying to push that flow and that just trying to be nimble and be responsive.
You could argue that if we could really execute perfectly we'd use some of these disruptions to better distribute the fleet and that of course is the mandate I'd given to people who have that job, but it's a little easier said than Doug.
Okay. That's good color, so and then on the truck side.
With the if you can't.
Get new trucks important GM.
The auctions or.
Or the auctions still closed.
Yes, they are starting to open virtually.
The largest I think that a large the manheim.
[noise] furloughed over 10000 people and their stated intent is to attempt to not reopening.
To transfer to a virtual business change their whole economic structure well during that time sales of just collapse now whether that's because of the virtual format or a whole bunch. Other factors I could only guess I have no.
What we see what we're able to move on a daily basis.
And that's just you know.
It went to just almost zero for a couple of weeks now slowly creeping back when it's nowhere near.
I would say its.
Less than.
12, or 15% of what we would have expected Jason.
Yep.
It's just a drastic decline.
Now we watch the everyday and we every swap we see a little globally kind of encourage each other and all that but.
When the money probably comes into Jason it's disappointing so.
I I don't know, what's going to happen with the auction business and I don't if you've ever been to one but they.
It's a big socially band as well as a as a sales event and so there's a whole bunch of people who.
Have their their business social activity built around this but they're all rubbing shoulders with each other it's helpful Bustle and.
If if people are unwilling to be in that environment.
Compared to an open air market or something people may not be willing to be back in that environment. If that happens just can change the whole auction industry and Mannheim is making the right that I have no idea what's going to happen.
Sure.
Have a scenario, where the auctions or <unk>.
You know if they are back on line, but but a little slower and you can't get trucks.
From Ford GM does that put too much pressure on.
Uh huh.
Being able to sell trucks to raise cash in this environment I mean, how do we.
We just want an operation.
We'll slowly down the truck gets a little bit older. We.
I spent a little bit more money on depreciation and we've done that our fleet is in.
Far and away the best condition, it's been in my working life far away.
I would say.
Well I, there's no comparison I caught up at all maintenance.
Every preventive maintenance is on schedule today.
My truck by the fleet is newer than it's ever been it has less mileage than it's ever had if there is to be a time, where we had this problem today's today.
And we had been building towards us.
As a.
Because these these things always happen I'm, a real big believer in seven Goodyear's, followed by seven bad years.
I think theres, a long history shows that trade had oh, I've always trying to put.
You know something away just because it's going to happen in this case, we're sitting there right with this fleet.
Fleet is.
Dot com and parts, we know how to maintain them we have all our support systems totally operating.
And if we had to go.
Two years without a single addition, we go two years ago single addition, no.
I would rather not because then you'd be a little.
Long in the tooth, but we could we could go two years easily and the consumer would never see a difference.
They would have the same reliability to the truck they would appear the same.
You know as modern as as they need them to appear.
So I I go two years now that's not my choice I don't think thats going to happen.
But if that happens if that's where this is going to go we'll go that way with it.
Yes, and with that that's getting I mean, it's good to know and with the revenue trends, though state.
Overall remain weak.
And the auctions or close deals.
Anymore to build this the self storage you know for the stuff that's already in the ground under construction do you need the proceeds you know if congrats shrinking the fleet some for cash flow purposes no.
We don't need on I mean.
Yeah. This is the guy who is never going to turned down at all or okay. So, but do we need them in order to proceed ahead, no, but Jason constantly monitor sat and this is a week by week process with him I know, Jason if you want to give some color to that but he.
He's on me like you know whatever.
He wants still cost like where we are.
Because he has to wonder what's going to happen Craig that this Jason I think I mean, I'm not sure if I'm reading more into the question or not but.
The auction proceeds.
Aren't used for it for general operation as it typically is just as as capital to by the next round of trucks off the next round of trucks aren't being purchased than the auction proceeds aren't aren't that necessary.
So for us I would say that.
If if the auctions where does it stay shut down for another.
Six to nine months or we get closer to a two year hold period on the pickups and cargo vans that will become more of a capital planning issue as we'd have to work through some some issues in in our revolving facilities for holding the trucks more than two years, but it but at least for appropriate for the next year or so it that that's not a.
Something that we need in order to fund operations.
Yeah, that's one and then just more from a cash flow planning perspective. This.
He's got a topline pressure opex isn't that.
In as flexible and you want to build the self storage just do you have enough cash if the if you can't raise proceeds from selling drugs.
Yes, I wouldn't be.
You don't need them to for cash flow purposes, if you're not ordering new trucks.
Yeah, we had essentially we had kind of a a onetime use of cash from deferral.
Frees up so when it when auction sales stopped we still had.
Several thousand trucks in the pipeline to be delivered so we did pay for trucks that were in the pipeline and we didn't have the auction proceeds for though so April had kind of like a onetime use of cash to buy trucks that didnt have auction proceeds to offset it but we were able to to deal with that that outflow and it hasn't been a problem.
Okay and.
And then as I can happen just segment on the self storage side.
Rates, which is a key component of the in place rents because of shelter in place orders.
Are you all seen.
Rate pressure, it's because it's similar dynamics.
Downward rate pressure exactly and where we're not the first one to flinch in that circumstance okay.
My Guy who manages races.
Little.
He sees these not the one is going to take take the high died okay.
And so of course the answer with the customer is is it worth.
Whatever let's just say $50 them a worth it to move.
Well that has a lot $50 this $50 and times 12 month at $600 until you can see a person to say.
I can get at $50 cheaper I'm going to move.
In $50 would be an extreme rate cut maybe 35%, let's say.
So.
Hi.
In that case, we're trying to sell on served.
And.
I would say our service.
Is right.
Tom I won't say our services the best because it varies by.
Manager by location our services the best it's ever been U hauls history.
And I believe our combination of security.
Ancillary services.
And locations.
Helps us be able to address rate issues.
In a way other than simply matching rate.
But there's going to be some.
Recently introduced the new probably no more than I do about apartment rents are multifamily rents or some other.
You know.
Real estate.
A process, but when there's a.
Oversupply there is some people who are financed in a real.
Hi leverage rate.
And there are under occupied.
I'm seeing these knee jerk reactions, let's drop our rate, 50% see if that helps well, it's not going to help.
If you're going to go out of business because you can't survive, even one year at 50%. If you feel the whole place you still would be making your cost of capital.
So.
I don't know all their financing, but there's a typical bunch of people are out there on.
One and two year financings.
At full cost.
And.
The <unk> if they if they dump rates, they're essentially transferring titles so I view it.
And.
Yeah, but the <unk> it'll damage to us as they go through that process and they'll damage from other people in the business.
So I can't I don't control them, but you.
Again, you've seen it no doubt in some other.
Real estate feel like apartment, what happens and.
Hopefully, where we see it will be contain to a specific market nobody a will.
Nobody has a nationwide or a large footprint competitor.
We'll.
Take a knee jerk reaction, we would hope that those people would be.
Have a more long term perspective.
And.
But we'll see.
We'll see.
Okay. Thank you asked.
Thanks, Craig.
Oh.
Now our next question will come from Jamie Wilen with Latin.
Please go ahead.
Given your outlook for the auctions and the ability to getting <unk> would you expect your fleet size true.
Ah diminish this fiscal year.
No.
Because precisely because there is no place all the way to get the fleet smaller cielo.
And if we don't get a sales market, it's not going to get smaller now Jason talked about we picked up some extra trucks and all I'll have a number of the be wrong, let just say we picked up 1500 extra trucks.
In late March in early April.
April.
Those are kind of you know a millstone around our neck, we have.
A program to attempt to deploy the marginal markets to see if we can what we can get for income on them.
But that that that is changing easily weekly as we start to regain the business.
So.
My bet is.
We're going to shrink the fleet, a little bit, but I don't know for build to shrink it before September October.
Because the steel market.
There's just no point in going into the market.
And dumping your prices the the sales were getting now our full price sales.
And that's our attention Theres no reason for us to go trace.
We used truck market, we're a big player in that market, we don't need to put pressure that market we have good merchandise.
I think if the options were running this might have been an opportunity because the factories have been shut down.
And so there's the supply is now that red several articles that said that.
Dealers are begging for pickups.
Dealers by a lot of our pickups.
And vans.
Clean them up with them on their lot.
As little mileage used cars that are still available for sale.
Standard bank financing so.
If we were able to if that market. It existed we've made some sales to the interest because of course, we know these people we can deal direct.
And go around the auction, but they're still constrained because in some states. They made them close the car dealership industry.
And so they really haven't seen their business I have a couple of dealer friends.
A couple of ideal friends are starting to see business where.
The government has lift lifted these orders so stay in Arizona, I've seen dealers and Arizona do better.
Almost the last years level now whether that pent up demand.
But it's a really murky picture.
Well one of my frenzy that 30 trucks.
On Saturday May three weeks ago. When he said that was exactly what he would've hoped for a year ago.
No.
But was that people, who should have bought in March and I I he doesn't on idol.
If the resale market continues to open up.
Would you like to reduce the fleet size a bit to increase utilization during forward.
Absolutely.
In specific mop.
Okay, that's all nice job with obviously the business.
Thank you.
This will conclude today's question and answer session and I would like to turn it back over to management for any closing remarks.
Okay. This is Joe. Thank you very much appreciate your attention your question and we're going to obviously.
Learn a bunch of new things over the next we now the next earnings call him.
I expect we'll make is.
Good how are the fact circumstances is anybody can make up the Texas.
Sebastian anything closing comment thanks for your support we look forward to speaking with you again in August.
The conference call has now concluded. Thank you for attending today's presentation you may now disconnect.
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