Q2 2021 Amerco Earnings Call
[music].
Good day, ladies and gentlemen, and welcome to the Americas second quarter fiscal 2021, Investor call and webcast. All lines have been placed on a listen only mode and the part will be open for your questions and comments following the presentation.
At this time it is my pleasure to turn the floor over to your host for today Mr. Sebastian right, yes, Sir the floor is yours.
Good morning, and thank you for joining us today.
Welcome to the AMERCO second quarter fiscal 2021 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 statements within the meaning of the safe Harbor provisions of section 27, a of the Securities Act of 933 as amended and section 21 E of the Securities Exchange.
Jack at 934 as amended.
Forward looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantify sort.
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 September 32020, which is on file with the U.S. Securities and Exchange Commission.
I'll now turn the call over to Joe show and Chairman of America [noise].
[laughter] Sebastian good morning, everybody.
As you can see from what we press released we had bang up results for the quarter.
And the more modest results for the six month.
We have weathered significant diversity guarded on occasion, we kept our team intact.
[noise] is code related events will be felt for at least two years as we get the rotation and real estate Capex on track.
As Jason will explain we put off.
18 to 20000 schedule vehicle replacement and.
And we've cut back about or delayed won a million square feet of storage, though.
Throughout this time, our banks and insurance company lenders have supported us well.
I Trust our performance continues to meet to merit their sea port.
We're now seeing a wave of demand that is driving our top line growth.
We are attempting to earn these customers continuing repeat business.
We are in a better position than I thought possible last March.
We have a good team in place.
And I look forward to further success.
With that I'll turn it over to Jason to go through the mill. Thanks, Joe.
Yesterday, we reported second quarter earnings of $13.58 a share that's.
That's compared to $7.97 a share for the same period in fiscal 2020.
Throughout my presentation I'm going to have all my comparisons will be with the second quarter of this year compared to the second quarter of fiscal 2020, unless otherwise noted.
During the second quarter, we have seen an increase in customer demand for our self moving products and services.
I believe that its various levels of government have eased restrictions as compared to the first quarter and.
The first quarter sales decreased from commercial auto auctions. These are now open and we're experiencing higher resale values.
But we've slowed sales, while we wait for new truck deliveries.
With regards to self storage, we continue to have success filling rooms looking at our occupied unit count at the end of September we had an increase of 53800 occupied rooms compared to the same point in time last year.
During our last earnings call Ah reported that are June over June growth was 41700. So the pace of filling rooms has continued to accelerate and does so and will continue to do so I am to October.
Revenues for the quarter were up about $10 million or 10%.
For the first time in several years are all in blended occupancy rate for the quarter experienced an increase I think this is the first time that we've seen an increase in essence March 2015.
This is a result of the increased pace of filling new rooms, and also partially to a slower rollout of new rooms.
So far for the first six months of this year, we've added 17000 new rooms.
My last year at this time, we'd added 43000 rooms for the same six month period.
This is related to our capital expenditure spending for real estate.
For the first six months it was $226 million that's down from.
The first six months of last year, when it was $423 million.
Both the pace of acquisitions and construction has slowed during the first six months.
Retail sales increased 25 $5 million, that's about 35% increase for the quarter all three of our major product lines moving supplies hitches in tolin accessories, and their installation and propane refilling reported games.
These lines are continuing to improve in October.
Operating earnings that are moving and storage segment increased by $145 million to $374 million.
Wanted to touch on a couple of the expense highlights first depreciation expense associated with the fleet decreased by about $11 million for the quarter.
So we had expected depreciation expense to slow this year, but it's happened a bit sooner than what we expected due to the delays and new production.
Over the last half of this year, we should see that decrease begin to add but then likely increase for fiscal 2021.
Operating expenses increased $10 million, a right much lower than the growth in revenue.
We benefited from flat personnel cost and decreased repair and maintenance costs.
In the coming months, we will see some increases in repair and maintenance due to the increased miles driven by the fleet and as we begin to ramp up truck sales.
Several of our other categories increase but to a lesser extent. This includes estimated liability costs property taxes and shipping costs from our Ublock fly.
We continue to improve our cash and liquidity position.
At September 30th of this year, we had cash in availability from existing loan facilities that are moving and storage segment of $1.293 billion.
As a reminder, six months ago at March 31st as we were going into the beginning of the COVID-19 crisis. This number was 498 plan.
From a cash and liquidity perspective, we are much better situated now.
Should COVID-19 related business restrictions.
Worse than.
With that I would like to hand, the call back to our operator chess to begin the question and answer portion of the call. Thank you.
Thank you ladies and gentlemen, if he did have a question or comment it is star one on your telephone keypad at this time.
Is that what you are posing your question you pick up the handset to provide the best sound quality again, ladies and gentlemen for any questions or comments. Please press star one on your telephone keypad at this time.
Please hold while me Paul for question.
Our first question will come from Stephen Rosten attacks.
Good morning, and keep it.
Morning, Steve.
Congratulations on the blow out quarter Star.
Stocks doing very well today.
Could you dealt in a little more and can you your expansion program it seem to be a driver the joint enough capacity to meet the demand that happen during the quarter.
But also your into new insinuating that you're Capex has pulled back at the same time and I'm looking looking more al future demand.
Which is the automakers are still struggling to meet.
Meet their commitments both to their dealers and their fleet customers. They just.
There.
They have so many supply wires such a complex web.
It's not so simple for them to get this all going again.
At the same time, we are kind of a unique situation, which is where is our fleet.
Right now.
Basically you can take the two coasts.
Mark them empty.
And you can mark at the center of the country over.
Oversupplied.
And so thats, not where we'd like to be and it's an unusual circumstance.
Normally we have not seen.
Patterns change this radically this fast.
So.
We're of course daily trying to.
Figure out how to.
Maneuver to keep the best utilization of the fleet going very positioning your fleet yes.
There are so many of you who are in.
The New York, New Jersey area were just simply out of trucks.
For what we call one way rentals, if you want to move into the area from one building to another we're well supplied but.
But for people who want to.
Moved to Iowa, and there was a bunch you want to go to Iowa, It's a little bit tougher and so we're not able to.
Fill that demand is great as it is it's greater than we can fill but.
But we're working on it every day and of course, our U box product.
It is really come into play here given us a.
Another option for the customer that not everybody does in our peer group house.
Oh year over year, what was the increase in the.
Number of box trucks and trailers available.
We're actually at the end of the quarter were down.
A little less than a thousand trucks are about a thousand trucks from from where we were last year at this time and that's mostly has to do with it.
Pickups and cargo vans portion of the fleet.
So.
Your usage rate your utilization rate of the has obviously going up.
Exactly.
And it gives a metric on that.
Oh, we have a lot of that.
Dozens of them, but.
It's only meaningful if you get down to a very tight geographic area that metric for the whole country just.
Kind of like the average health of the country doesn't mean right. It's it's meaningless, yes, I understand but we were driving on all that.
We were organized with what we call marketing companies, which we have 185.
And then we have.
Inside that.
We called dealer routes and then centers. So we have about 800 dealer routes and about.
2000 center, so we measured at that level, but.
Those three levels and then we try to optimize inside of that Sundays, we do better and some days, we do worse obviously.
We are of course going into what would normally be our slow season. So we've got.
Overall plenty of equipment, even with the increase in demand through the winter.
That makes sense.
We have lowered utilization normally so we can run the same utilization do okay.
Well, we'll see what happens comes sprint.
Thank you very much.
Thank you.
Well go next to Jamie Wilen at Wilen management.
Thanks, a couple of quarter fellas.
Joe I want to issue many months ago, what's the most important metric was and managing your business managing truck rental and you said fleet utilization.
Obviously, this quarter with fewer trucks and volumes up that much the fleet utilization was up.
It was off the charts.
And when you look at that number one one fleet utilization goes off the charts.
Obviously, our income goes off the charts because everything's in motion.
End of the previous caller asked about what the future plans.
Plants offer increased.
HM.
Increase increasing the fleet, but.
In the context of.
Oh, great operating margins with greater fleet utilization could I hear your broader term perspective.
Yeah, you know of course, you want to drive on fleet utilization.
If you all.
Oh, all this isn't the FCC number but over the last 30 years.
We've probably had a net increase of fleet utilization to every year, but maybe for.
Jason Nodding his head or not but I've kept track of it it's pretty close to that so that that's where the economics are also what kind of driven there Jamie just because.
Cost of equipment is always rising wages are rising you just so the place to take it out it was better utilize the clean up of course, if you ever at least seven days a week.
Have to hire armed guards to make money in the bank so [noise].
I get that and we do have locations that run every equipment every day that we.
No that's not the norm, but we know we know basically.
Basically how to we know how to run at that level. So there's a lot of scheduling.
Things involved to run at a higher utilization.
Utilization level in most of our systems.
Wood or facilitate that so.
Well were looking what little unknown here right now is the distribution of the fleet like I said, it's kind of creepy.
Creeping towards the center of the country.
And.
So we're getting great utilization, but at a point, we're going to get.
Maybe too much in the center of the country and we won't have enough outflow of them. So we have to be kind of careful there and selective where we're sending this equipment and we're sorting through that as best we know.
No how arm since.
Constant process so yeah.
Yeah, we don't need to expand the fleet.
Oh.
To do more business, that's what you saw here no.
We we kind of held fleet because.
Your fleet can also be determined how many trucks yourself you saw truck sales were down.
So because the gain on sales were down you saw that.
Well gain on sales for the quarter were up and that was from resale values actual number of units sold was down it was down and so.
That way you can kind of I don't know if you call. It will grow at the bottom end of the fleet.
And so.
We have some flexibility there in sales.
We've been blessed by a a good sales team.
Yeah, the country's bill.
Prosperous for the last 10 years, or so and our our consumer for our sale trapeze usually.
Small business or entrepreneur.
So when those people are thriving we have a ready market to sell our equipment into.
So we have kind of postpone some of those sales and we're going to regulate that as best we can even do.
Geographic so for instance.
Hi, two people call me last week, one to buy trucks in Los Angeles, while I'm sure. They did Oh my.
Hi, guys fill the truck in Los Angeles, I gonna be upset because we got rid of the damn thing even if he left a little bit high mileage, even if it isn't perfect. We have rented because there's enormous demand there.
But on the other hand of my Guy in Nebraska sells a few extra drugs I might sentiment attaboy.
[laughter].
There's a lot going on inside that we have a pretty good idea of what it is and we're going to try to manage it.
Two.
Increased fleet utilization you also saw I think Jason said we.
After a number of centers and up their number of dealers in the first six months of the year.
And.
That goes against workload utilization you see because the more places you spread the equipment, it's harder to get.
Good utilization so to get good utilization and also see an increasing.
Locations I was I was pleased with that I think that's.
That's operating well.
Uh huh were not always.
We have not always done as well on that but that's.
If if we open the right locations and get the right equipment to them.
Hold or increase utilization, while we're expanding convenience to our customers.
Right.
And October did you mentioned that it's continuing at a double digit pace I mean, Chris.
Oh adjacent to that right, yes, okay.
Okay on AMR self storage side, Jason in the past.
Historically, you've given some.
The numbers on the occupancy rates for those for our mature stores.
Do you have those as well sure so I have to.
The last couple of quarters I have.
Given what.
Competitors same store calculation it looks like for us so locations that have been at 80% for two years in a row. So the occupancy at those locations this year.
Is about 93.2%.
That same group of facilities last year was about 92.3%.
Excellent okay.
The state of the self storage industry seems incredibly healthy and.
Last week, there were a couple of transactions.
That work at incredible prices per square foot.
When you see those numbers obviously it.
It points to how undervalued our self storage operations are but do you get the thought we would sell sell something.
Our self storage that are mature that we could get a full price. So on so we could accelerate the development of other self storage.
I don't see us doing that what we do Chris.
Presently is we.
They said they put them into CMBS or some other long term financing and take that money.
And reinvested and so you take a little hair cut every time, you do that compared to a straight out sale. It's just our view and say you take it.
30% to 35% hair cut in case realize Jason.
Yes, something like that but we still have the asset the asset still producing income the very next day, it's producing income sources.
I don't know exactly how to calculate the haircut. So that's that's the way you should expect to see us going ahead.
[music].
We're actually and.
In our own minds think were more and trying to.
By more self storage, they're not you mentioned there was a couple of transactions.
Familiar with it simply with what I'm not sure of another one I'm not sure what you're talking about.
There was the Blackrock in the results.
I believe you store bought some from.
In New York affiliate research.
Yeah, I don't know much about the storage deluxe.
Transaction at all as far as Blackrock.
They probably bought that at the best price that could be achieved I'm. So it's.
It's hard to say you know, what's an astronomical price I always wonder seems every time I go to buy something it's astronomical but.
But.
The little bit I know about the Blackrock organizations, they probably dealt pretty hard and probably about that.
The best price that was going to trade at I don't think they.
We're suckered or anything or you know, Bob Evans with Sky to to my knowledge.
So.
It was a it would they they got they got a real good price that I think those properties a lot of those properties have traded three times in 10 years.
Jason Yeah, Yeah, yeah.
Yes, so and.
And every time they traded it traded at a gain.
So I haven't been true when I wrap those numbers around our self storage operations, you get that our self storage if you will.
Oh, several hundred dollars a share per share up more.
And what we target for.
Not that we're selling it but that's an incredible number.
Yes, we're building.
A base of.
Value here that.
Should allow us to project into the future aggressively these.
These markets are best teams I mean, their best if we ever got a position to make a real move.
You see that.
That may come into play and allow us to.
Taking action that nobody expects.
We don't have anything like that on the on the burner, but obviously.
We have some value there and maybe you too.
Try to help our shareholders appreciate.
Would we ever want to break out the self storage business. So it's a tremendous cash flow business, but obviously.
There is a significant amount of depreciation and very little in the way of any capital expenditures. So on a profit basis is not nearly as impressive as on a cash flow basis grew ever break it out so we could see those numbers of a.
How profitable those guys are on a cash basis.
Hi, Jamie This chase right now we don't have any plans to do that.
Okay.
Lastly, things your box volumes, you mentioned was strong could you give any percentages.
Yes, Sam Seer, Sam Sam My son, San run type area, Sam you want to speak to that what's what's the increases.
In percentages sure. My name is damn shown on the program manager for the U box product line we've.
We've seen.
Formans relative to you move with about 10% more on top of what you've seen with you move I'd, rather not give more specific than that but we've seen exciting performance.
Continue into October.
And I think we were performing I would have characterized as performing well pre coded I'm extremely excited to see how we're performing in the middle of Covidien I can I'm expecting it to continue postcode.
The operating margins on U box, how would you compare to the <unk> business.
Yes.
Jamie This is Jason on on that.
It's all kind of pro forma how you decide to do internal.
Financial statement, but it's very close we've had some quarters. It's outperformed other quarters is within a couple of percentage points. So its very close and it's all a game of how many how much how we decide to allocate overhead costs.
Got you.
And lastly, the products and services do you say sell as an adjunct for self moving was up 33% I would assume that's a higher margin business than anything else we do.
We eat you can track the margin on that because if you take the retail sales line and the cost of goods sold line. Those two are are.
Directly attached to each other so if you look at contribution margin between those two you'll get a sense of that.
Okay excellent quarter, well done managing the business. Thanks Fellas.
You bet. Thank you Jim.
Well go next to Craig in men had artisan partners.
Hey.
On the you know the revenue growth can you talk about and I know, it's hard to get an average but can you talk about the split between transaction and pricing changes just because you're you're seeing some <unk>.
You know the way to the shift in that.
Trucks from coast to inland is creating some some pricing tailwinds tier.
Craig this case and that to.
The split that up a couple of different ways I would say that.
A little more than a half of the increase is coming from the one way business.
And then between internal one way a little.
About half of that is coming from transaction increases.
Okay split half okay.
On the.
It's a technical question the prepaid.
No one in the queue it's disgusting.
$380 million refund on taxes.
How much is that the number that's outstanding still.
So yes, so yes, so we have.
We've received.
I believe it.
Brian $110 million of our refunds.
123 million [laughter] Penn.
Pending with the IRS right now.
And then we have an estimated amount for our fiscal year 20 return that we have we are about to file but haven't yet filed.
Okay and that goes into that 380 number that you expect to receive yes. Those that have you had a borrower paid that we would expect to get back.
Okay, and that's booked in that prepaid number on the balance sheet correct.
Correct that that got a upon the.
Passage of I think it was the cares act that was mainly reclassified that amount.
Okay tact vision.
Okay.
One more on the you know on that on the senior mortgages.
A little over 2 billion, there with us I think a little over 4% interest rate. Obviously, that's come down a lot is there much wiggle room or would you ever try to.
Extend duration and bring rate down.
Well on our new deals.
Kevin hard as our assistant treasurer in charge of real estate financings. He has a couple of deals outstanding now and I think our most recent CMBS deal. We have pending we're looking at a rate that will probably come in under 270.
For a 10 year deal.
Otherwise and typically what we do to answer your duration question is that.
What we'll find what well do temporary financing on a property within the first five years of life. Then we'll typically look to do a seven to 10 year deal for for the.
First a portion of it stabilize life and then after that we look to do something that's maybe 20 year plus sort.
So at a certain point all this new development is going to work its way through that got processing and we'll start to do some some longer term financing on those properties.
Okay. Okay.
Okay.
Okay, I guess I'll ask on.
Obviously, if you look at the six months results you have a little bit of gain in revenue I'm looking more at the moving and self storage business in a little bit of decrease in.
You know in operating costs, but.
But in this nine day period, you had a massive gain in revenue and no real jump in operating costs.
And.
Can you talk about how much you think you can we can leverage there because I want to get a better picture of.
Right.
I mean, it is utilization driven but how do you.
You'll pull it off I mean is there more to it is there.
Is that just a phenomenon of 90 days or is this more like a if we get this revenue growth you can expect the costs to to stay low and we can leverage off of them.
Craig It's it is it's a little bit of both we have some trailing costs that we're incurring right now that aren't showing up on the income statement and and that's largely in in repair and maintenance right. So we have these trucks that transactions are up.
10% plus that at some point now we're going to have the preventative maintenance checks on those when they come back in and we're going to have those during a time of the year that we we don't normally have those right. So the the the comparison year over year on maintenance expense, probably we're going to see that come up a little bit but.
On the other portion of the U move revenue increase that isn't transaction base, that's largely going that largely operating leverage right.
And then on personnel expense that was the other I mean really the majority of the margin improvement came from keeping a lid on personnel costs and.
And then keeping a.
Lid on on repair and maintenance costs I think the personnel one we have the opportunity to to continue to contain that a bit.
And we will see repair maintenance come up a bit but there's certainly a good opportunity over the last six months of the year to continue to accrete some margin improvement from repair mate.
Okay Yeah.
Yes. It it said the people running the stores you know needed they can get more efficient you don't need to bring more folks in there to drive costs out if they're driving more business is coming their way.
It's possible you know that's just it just the questions a whole bunch of small things, it's a service business.
Like anything any other operation you could.
There are more efficient ways to do things best practices.
And as we get more uniform implementation of best practices they become basically.
Basically by definition more efficient.
No.
At the same time.
The last six months, we've been saddled with this.
<unk> sanitizing, which is a huge effort yeah.
And.
I can't under I don't Wanna under Underplay, it huge effort is ongoing.
No Jason as a guess of what we spend either that we guess yeah, but it's a it's a lot because basically the.
The customer expects the truck sanitized, and that's a little bit easier said than done.
It's not a miracle spray that weve appointed through the window, it's a whole bunch of wiping and scrubbing it.
This is all done by human beings. So.
You know that that's hurt our efficiency in fact and so on.
Very impressed with the.
Of course, we have out there at the point of sale they were able to.
Holders both as they did on total costs to accomplish as well.
So in that light the opex.
Is even better than it appears.
That's what I would say I'm I'm real proud of what they've done.
Right.
You know I would much rather we didnt have this.
Oh, Yeah, just disinfection or whatever you want to call it amortization.
Thing going on because it just it just waste labor, but every term options anyway.
At every turn consumes labor and.
You know you have to pay for label, that's all and of course, we want to actually see people get paid more.
Would be our objective for our big objective and trying to drive efficiency.
Here, Craig is to be able to pay better we have a lot of entry level people.
Prior to overhead.
President Trump drip the economy for entry level people, we had to compete for them and that was kind of exciting that means they get paid better.
And I got a lot of them working for me I'd like to see them paid better not worse, but to pay him better I got to make them a little more efficient.
That'd be back there but.
I Didnt have told me that there may be more more margin in payroll to pay the individual person.
More per hour and I think all of US as Americans are.
Hundred percent more for people at the entry level getting a.
Better in so.
You know these things are all kind of intention and push on each of the last six months, we did we did well.
And we're trying to do well going ahead.
That's great then the self storage.
Obviously, the development was a little bit slower in terms of square footage added how much influence. There is just building costs changing with your backlog is there is that going to slow development in terms of what you can pencil out to get a return.
<unk>.
Probably not in the short run I mean, I think that.
There's a lot of pressure construction costs are I think I don't have a metric on it but they sure seem to me like the rising faster than the rate of inflation, that's talked quite a bit.
So.
And there's been a shortage of.
People. So they've had the same problem to that contract to produce framers or.
Concrete layers can even produced the people to get the work done.
So you pay a little bit more and maybe it just takes a lot. That's all so we've seen a lot of delays.
Caused by the inability to.
Fine crews, so I don't know what the.
The office industry is I'm, hoping it slows down construction.
He is up some people that.
Our our contractors going higher.
Yeah.
Last one Jason I saw it looks like you're about $13 million in preferred.
Issues was that an insured asked this on the Q is that in the.
Insurance business.
Yes.
I'm not sure that that was that our property casualty sub.
Subsidiary.
Can you talk about why you you targeted that instead of instead of equities or just the mindset there.
Well, we have we already have a pretty decent portfolio of common stocks over there I guess about 17 million act at cost.
The preferred as most of these I think are perpetual preferred they fit the long term liability stream that we have over there.
As well as they have some excess capital over the over there as well so that it was a yield enhancement.
Decent credit and.
It helps and enhanced the field a bit and and also of note during the quarter am best upgraded our PNC company Rep West from an a minus two to an a rating.
Right well, we're pretty excited about that Oxford, our life insurance company isn't a minus and we we would expect that that.
They would also be an a rated company in the near future.
And when would those discounting coverage that you weren't like new issues that were coming out does.
Does your life market.
I don't believe so I'd have to go back and look at the last I don't remember off the top of my head yes.
I know its pretty technical question [laughter]. Okay. That's all for me. Thank you.
And with no other questions holding I will turn the conference back to management for any additional or closing comment.
Thanks, Jeff.
Many of you may have noticed the absence of someone on the call today.
We were recently notified that Ian Gilson with Zacks investment is retiring.
I think we all wanted to say that we appreciate the time and effort that Ian put into following you all over the years.
I know that that I started doing these calls in 2005 and he was following us even both before then.
His knowledge insight and understanding of our business has.
Really enlightened countless new investors and a and his presence is going to be missed here.
God Bless you.
We look forward to speaking to everyone again for our third quarter in the first week of February. Thank you.
Ladies and gentlemen that will conclude today's call. We thank you for your participation you may disconnect at this time and have a great day.
[noise] Oh.
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