Q3 2021 Amerco Earnings Call
[music].
Good morning, and welcome to the Americold third quarter of fiscal 'twenty, 'twenty, one investor call and webcast all participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask the question. You May Press Star then one on of Touchtone phone. The withdraw your question. Please press Star then two please note. This event is being recorded.
I would now like to turn the conference over to Sebastien Reyes. Please go ahead.
Good morning, and thank you for joining US today welcome to the America of third 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 day.
Of the Securities Act of $19 33 of the amended and section 21 E of the Securities Exchange Act of 1934 as amended.
Forward looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified.
Certain factors could cause actual results to differ materially from those projected.
For a discussion of the risks and uncertainties that may affect the Americas business and future operating results. Please refer to form 10-Q for the quarter ended December 31, 2020, which is on file with the U S Securities and Exchange Commission.
At this time I will now turn the call over to Jason Berg, Chief Financial Officer of America.
Thanks Sebastian.
I am speaking to you today from my office here in Phoenix, Arizona.
Joe showing our chairman and CEO.
Out traveling in the field working on some of our locations and is unable to be on the call today.
After a few minutes of prepared remarks, and then we'll go ahead and open it up for questions and answers after that.
Yesterday, we reported third quarter earnings of $9 33, a share compared to a $1 58, a share for the same period.
2020.
As usual throughout my presentation of all of my comparisons will be for the third quarter of this year compared to the third quarter of last year unless otherwise noted.
Over the course of the third quarter, we continued to see strong customer demand for our self moving products and services.
Our frontline teams have been answering the call since the onset of the pandemic and all of the government's responses to it.
The efforts of our field teams are independent dealers combined with the technology that was already in place.
US and the superior position to serve moving and storage customers.
The equipment rentals, so on increase of 30% of about $187 million.
For the nine months, we're now up 10% or $219 million. That's the good result, under even normal conditions.
Compared to the same period last year, we increased the number of retail locations independent dealers.
Box trucks and trailers on the rental fleet.
Of note, our corporate account business or what many referred to as last mile business experienced an increase in revenue for the quarter.
We've seen growth in U move revenue continue.
For the month of January.
Capital expenditures on new rental trucks, and trailers were $541 million for the first nine months.
It's down from $1 billion $161 million for the same nine months period last year.
The combination of planned decreases along with COVID-19 delays are responsible for the decline.
We're working to ramp up the manufacturing of the new equipment as quickly as possible.
Absent any on additional unforeseen delays it will likely take us a year on a half to two years to normalize our fleet rotation program.
The investments that we've made in the fleet prior to this or what put us in the position to whether the supply disruption without negatively affecting our ability to serve customers.
A rough estimate of fiscal year 2022 fleet Capex would suggest that spending is going to be similar to that of fiscal 2020.
Proceeds from the sales of retired rental equipment decreased by nearly $162 million to a total of $430 million for the first nine months of this year.
Sales volume is still below last year's levels, However, sales prices have improved.
The self storage industry as a whole continues to do well and we continue to have success in filling rooms.
Looking at our occupied unit count at the end of December we had an increase of 66900 occupied units compared to the same time last year.
During our second quarter earnings call I reported to you September over September growth of 53800 gross.
So you can see the pace of filling rooms has continued to accelerate and is doing so as we go into January as well.
Revenues for self storage were up $16 million of 15%.
For the second quarter on a row now our all in blended occupancy rate experienced an increase.
The third quarter rate went from 67% last year to 73% this year.
We added.
We've added just over 29000 new rooms.
During the first nine months of this year.
Last year for the same nine month period, we have added 59000 rooms.
For the first nine months of this route of invested $365 million in real estate acquisitions as well as development of self storage in U box warehouse space.
That's down from $600 million.
Same time last year.
Our goal is to increase the pace of investment however, that's going to be dependent upon our ability to find opportunities that fit our economic model.
We currently have approximately $6 6 million.
The new rentable square feet in development, that's across 134 projects.
We have an additional cohort of around 50 properties that are not yet in the active development phase, but that we own.
As with equipment Capex growth in storage Capex is going to take us from time to ramp back up.
Retail product sales increased $20 million of 37% for the quarter with all three of our major product lines.
Reporting gains.
These lines are moving supplies hitches in Tallinn accessories, and propane and.
And we are seeing these improvements continue into the month of January.
Operating earnings in our moving and storage segment increased $202 million to a total.
It'll of $264 million per the quarter.
For our three largest operating expense categories personnel maintenance and repair on the fleet and liability costs.
We saw quarterly increases, but they were well below the rate of revenue increase.
With the volume of rentals over the last two quarters, we will see another increase in repair and maintenance costs next quarter, but it should be well below the revenue trend.
For personnel. The company has now recorded an expense this year yet for our contribution to the employee stock ownership plan.
That will likely be recognized on our fourth quarter, whereas last year, we spread that expense out of over four quarters.
We continue to improve our cash and liquidity position at.
At December 31 of this year cash and availability from the existing loan facilities.
Of our moving in the storage segment totaled $1 billion $343 million.
During our third quarter, we declared and paid a $2 per share special cash dividend.
With that I would like to hand, the call back to our operator ration of V to begin the question and answer portion of the call. Thank you.
We will now begin the question and answer session.
Asked the question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up the handset before pressing the keys.
If at any time Youre question has the net trust and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
The first question comes from Steven Ralston with Zacks. Please go ahead.
Good morning.
Congratulations on I don't say this often an amazing quarter.
Yeah.
Aye.
Looking through the numbers.
And historically in the third fiscal quarter.
The company has reported usually between three and $4.
Except for one year, we had a real estate transaction.
And I thought I was very aggressive with my seven plus.
Plus estimate and.
You came in with $9 and it shows the ex.
Extreme leverage of the business.
If you could talk about that.
Because you were quite conservative on the second quarter fiscal quarter call.
Saying that it was going to be of challenge and repositioning the.
The vehicles.
The driver of being the <unk>.
And on the rental business.
And.
Obviously, you accomplish that.
You sort of gave of a one liner obviously the was strong consumer demand.
And your congratulated your field teams.
Hmm.
But could you talk about this leverage that you have.
When you're pricing and volume come in and you have this large.
Infrastructure and Youre able to utilize the better.
Sure is of Great Great question. Thank you Steven.
I'll break it down into a couple of pieces on well I'll.
I'll, let you redirect of if I start to wander too much.
So during this quarter.
I would say that.
Of the revenue increase that you saw for our equipment, maybe 40% of that was coming from transaction growth.
The remainder of that is coming from.
We refer to as revenue per transaction, which is the combination of either more miles driven per transaction.
The mix of trucks that are being rented for rate.
And I think what we saw during this quarter was the majority of that was was in the in the form of rate.
So the when you talk about.
From our last call chose concerns about.
On the placement of equipment across the country.
I don't think were we solve that.
To any large degree at all where we're coping with it and we're dealing with it.
But we still have the.
At any point in the year, there's always equipment dislocations and I would say, they're a little more pronounced true.
This is <unk>.
Cycle than what they've been in the past, but our teams are attempting to adapt to it but there are certainly parts of the country that if you go to say.
Say say Nashville should kind of see a lot more equipment than you than you're used to seeing and we're still working through that and one of the ways that we work through that is.
Through the prices that we charge customers. So it's the natural supply and demand.
And as the equipment becomes harder for us to put in certain places rates go up.
And we saw the the benefit of that during the quarter.
I'll, let you redirect me if I haven't answered the whole question.
No.
That's fine thank you.
Also I noticed that.
The.
It seems like.
Rein in costs of your cost structure has gone down.
What the revenues went up 30, some percent of and the.
Costs were only up I think 4%.
Was there anything done on that area.
Well, our big three expenses as I mentioned, our personnel is our largest and we probably picked up the most margin. There is I think for the the <unk>.
Quarter, our personnel expense may be only went up.
$555 million.
On a pretty significant increase in the.
The revenue and what we're seeing is the majority of that increase.
In personnel cost is coming from.
Field performance compensation, so our field was hit fairly hard in the first quarter of this year as transactions went down revenue went down.
Is there.
Just the ball or performance based compensation of went down with it. So it was kind of tough on that one day of now in the last two quarters made that up and then some as a general comment so what we're seeing.
Those those bonus costs go up but in total we've been able to keep a lid on head count.
Our medical plan cost for the most part of this year have remained relatively flat as I think the.
On the virus has kept people out of out of the utilizing.
Medical care that much.
And then we have benefited for the first nine months of the year, probably to the tune of about $11 million on that I mentioned, the aesop expense that debt last year that cost was spread out evenly three of $4 million of quarter, whereas this year. It hasnt hit yet and it will probably hit here in the fourth quarter, but that should still keep us.
And in a margin positive area on maintenance and repair.
We've sold fewer trucks, so the two biggest components of our repair and maintenance structure of our.
Repairs that we do the prep the trucks for sale and then preventative maintenance on the fleet. So we've been doing preventative maintenance on the fleet as fast as we can.
We're a little bit behind where we were last year due to the volume of transactions. So we will see preventative maintenance costs rise again in the fourth quarter.
That's been offset by a decrease in repair and maintenance cost prepping trucks for sale.
So those are the two largest categories all of the other smaller categories. The kind of fall on that we see some increases in property tax for the year, but the revenues outpaced those costs and otherwise I don't recall of any other expense category sticking out right now.
Thank you.
Of expense is that going to be in line with last year or.
Off of.
It will probably be in line of.
Within say $5 million.
Alright.
Again, congratulations on the amazing quarter.
Thank you.
Yes.
As a reminder, if you have a question. Please press star then one to be joining the queue.
Okay.
Okay.
The next question comes from Craig Inman with Artisan partners. Please go ahead.
Hey.
Yes.
Hey, Jason.
The the biggest driver of.
<unk>.
As miles driven to see.
That repair and maintenance number not up a lot.
The surprising can you talk about that.
Sure.
I didn't answer the last question Couldnt effect so the.
The the preventative maintenance, which is driven by glitches.
One use of the bad on that is created by miles driven is the preventative maintenance.
That portion of our expense.
Per maintenance is up.
It's just being offset by the decrease where we're down I think for the quarter may be say 4000, 4000 plus units sold.
And so the the unit cost from prepping those for sale the pickups on the cargo vans the ones that we've had issues with in the past.
We haven't had as much of those costs running through for the quarter. So we're still seeing.
And the increase in that in what you are talking about.
We do have a little bit higher backlog the normal right now, but that's simply because we don't usually have this volume of transactions.
In November and December So we will have some additional catch up.
And then in the first quarter of this year, but it's not anything that's out of control.
Okay.
I hadn't really formulated this question well, but.
Try it.
I mean mobility in the U S is probably on the rise now.
So what's going through management's head on.
With regard to <unk>.
This new.
Film.
Freedom of driving around or migration across the country I mean.
Are you all going to.
Think about making the business bigger permanently or have we pulled forward demand and now we're at a right level of utilization on the fleet.
Some thoughts around just kind of the evolution of.
Uh huh.
Migration, how thats affecting your business.
Yeah.
That's an interest in question and.
We certainly didn't foresee this coming.
But what are the business model that we have been working now for <unk>.
<unk> is trying to be everywhere, where the.
The public is going to be and I think what this has created is the opportunity for us to expand in the more markets with company stores.
So often times, there's been markets that hasnt been big enough of a vibrant enough debt.
On the economics worked for a company store so we'd have a network of independent dealers debt that cover those areas.
And I think this is kind.
The spurred us on to to keep working the plan, where there's new markets that we can get into I've mentioned.
Over the years.
How many markets with at least 50000 people were in and Theres a number of those markets that we're still not in yet.
I think this is kind of pushed us along to continue down that path.
Line those markets find economical ways for us to get in there and meet the demand.
On the early on I mentioned that the <unk>.
Dealer network early on in this process are in this pandemic.
Our dealer network was was affected much more of than us as more of their businesses were shut down we stayed open we redeemed critical essential workers krill.
Critical of Central business. So we remained open throughout the entire thing many of our independent dealers Werent able to do that we tried to help many of them stay opened by.
By letting them use the U haul business as a reason to be open.
But over the second half of this year they've come back.
On a very strong way on are keeping pace with the growth that we're having a company location.
And we've grown our dealer networks of the dealer network has been relatively flat the last several years in the I think we're up a little over 1000 dealers from.
From December of last year, So, we're making a concerted effort to get closer to the customers. So I don't think this has changed dramatically on our business model I think in some ways. It's reaffirmed it and I think in other ways of.
The encouraged us to go a little bit harder at it.
Yeah.
How do you how do you get a pulse on.
As of one time move or is that more permanent condition in terms of the demand for your product.
Joe May of a different pay on this I guess I don't.
I don't have a real good feel for that I think.
I've always said our business is based upon.
Any life of that that would happen. So there's a whole bunch of people that have moved out of the big cities.
That's moved our equipment certain places and I think theres going to be of natural ebb and flow to help people do big cities and perhaps they'll move back of then we will be positioned well to help them do that as well.
Or if they stay where they are at the likely be moving around for the other normal life. The first marriages tests going to college.
The whole.
The whole process of going away to school has changed.
We will have to see how the dust settles on that.
But I think it will return to some semblance of normal and if not we'll just adjust to that.
Yeah, and then the the.
Fleet, obviously the migration has changed did you say I missed the first part of the call how much of the the revenue growth was volume versus transaction or.
About 40% has been transaction growth this quarter.
Okay.
The three year cohort on.
I don't know if youre doing that on just annually or every quarter in terms of 80% occupancy.
Or is that stabilized number is there any of that improved on.
Yeah. So.
I ditched that whole three year deal after that went down and claims of couple of years ago.
I have been I have been doing the I'll give you a few other ways to look at it and you can pick the one that you like the best but.
What one of the questions that we got from from Jamie Wilen, He hasn't been able to make it on the phone here, but I have some questions I'll answer for him was.
I had given out a number of how many of our locations are over 80% occupancy. So at the end of December 65% of our locations are about 831 locations were over 80% occupancy.
And that's an increase of 127 locations compared to December of last year.
And the occupancy for locations over 80% now average is about <unk>.
92% of Occupancies are up close to 2%.
From one of those locations were last year.
So the.
That was.
One way of looking at it the I also had done the formula for all properties that were open or had an occupancy of 80% for at least two years. So that's kind of what some of our REIT competitors users of.
Our stabilized occupancy number.
And that group.
It was the average occupancy was 93% and was up about three points. So.
It kind of no matter, how you look at it our average occupancy has stabilized properties is probably up about two to three points and otherwise we've seen of growth in the whole bunch of the other facilities are starting to fill up as we had hoped.
Okay, Yes, that's what I was getting the I can't remember, which one which iteration of that we're on but some look at it is helpful.
And then the tax refund it looks like in the you still have about $380 million to go there.
Yes, so we have.
But I think it's $123 million that we filed refund for and are waiting for it.
And it's now past the point where that now the.
U S Treasury is paying interest on those will be.
Haven't received them yet.
Then in December we filed our fiscal year 'twenty tax returns.
And.
Then the refunds that debt are being filed.
Carry backs for that are going to total I think of another $258 million.
So that's all still in process, but we during the quarter and up through today, we haven't actually received any of that cash yet.
Okay.
Alright, great Thats all from me.
Thank you.
Thanks.
Okay.
I would like to slide and now Jamie Wilen Couldnt beyond the call today, but he is he sent some questions ahead of time.
And I promise, we're not asking people to submit questions ahead of time line.
Uh huh.
Perhaps the white house's doing but.
He did send some so I wanted to hit those questions.
For everyone.
So jamie's first question was.
Occupancy rates at self storage increased nicely for the second straight quarter.
Given the pause in construction because of Covid would it be reasonable to expect occupancy rates to continue to rise.
Versus the year versus year ago levels.
And that one again.
Yes is the answer.
Have rates changed at our self storage facilities.
Right.
I would say that in looking at our average rates for customers that are moving into the locations.
So on locations that were in the portfolio of last year versus this year. So I have a comparison of those rates are up about 1%.
But once you blend in all of the new locations.
Our average rate per square foot looks relatively flat across the whole portfolio.
Next question is how many square feet of new facilities, where we add this fiscal year. How many did we do last year and what would our expectation be for next fiscal year.
But typically quote.
12 month figures.
So just to understand that this is going to be a nine month numbers. So for the first nine months of this year we've done.
2.866 million new square feet.
For all of fiscal 2020, we did $5 million 845000 square feet.
Right now our active project list.
<unk>.
Projected to build out of another $6 6 million square feet, but that's not all going to happen here in the next 12 months.
So I would suspect that by the end of fiscal 'twenty, one we're going to do maybe about $3 5 million square feet.
And for fiscal year 'twenty, two that's probably going to look.
Closer to this year versus what we did in fiscal year 'twenty.
As the next question truck rental volume was up nicely, while the truck fleet grew only marginally this obviously drove fleet utilization higher.
And as a result, we had a fantastic growth and profitability.
Did we ever reach a point, where we were close to capacity and trucks for rental were not available.
With the pause and delivery of new vehicles can we expect fleet utilization to continue to be well above the levels of prior years.
So.
I'll give you the answer that Joe is given in the past there is always time periods like the end of the month.
Our supply of strained due to demand.
You add into that now the significant movement of the one way fleet.
These high demand areas.
Just accentuating that so.
I want to stress again, the investments in the fleet that we've made previously.
Really is how we've been able to handle this demand today.
So that whole buildup so the.
To this the short answer the question.
Yes, we should expect fleet utilization to continue.
Going forward.
The next question when you talk about corporate business are you, specifically, referring to supplementing the fleets of Amazon Fedex and USPS during the holidays.
I assume they will not want to own too many trucks that are only used during the holiday crunch. So should we expect that there will always be a call for us to fill in with rentals.
During that time, when they are operating above capacity.
So when we say corporate accounts that those are the majority of what we're talking about the the last mile delivery business.
We do have we have a whole team of account managers the work with smaller accounts and just that so this business comes in throughout the year.
We are of great working relationship with these organizations.
I don't see any reason why that's not going to continue.
As I mentioned in the in the prepared remarks.
We saw this business increased during the quarter.
With more of our traditional last mile operators, not so much with Amazon.
Depreciation charges changed dramatically with the pause on self storage construction and fleet additions what would you expect depreciation to be in the next fiscal year.
Okay.
I think we listed it out in the 10-Q quarter of fleet depreciation I think was down about $95 million.
The $17 5 million for the nine months, so that you're not going to see that very often.
Yeah.
A few quarters ago, I think I told everyone.
Of that we're going to start trending up towards the end of this fiscal year well that's been pushed back. So I think probably now we're looking at the middle of next year.
A lot of that really has to do with the timing of the production of our 26 foot trucks and we're now starting to produce those and those have a pretty big effect.
All other non fleet depreciation I think we listed was up about $5 million for the quarter and maybe 18 19 million for the.
Nine months.
Looking at how that expense, which is largely related to our self storage development looking out of that's layered on.
I would expect that to continue to increase but at a lower rate now as we start to run into larger comparable quarters here starting on the fourth quarter.
Can you begin to quantify U box revenues the percentage increase from last year and its profit margins.
We're not at the point, where we're required to report that and we feel that reporting that puts us at a competitive disadvantage. So we're not.
In a hurry to do that because no one else is reporting on their results.
What I will say is that these revenues are embedded in the moving and storage.
Other revenue line so.
So if you look at that line and you look at the change and you should be able to at least get a sense of the direction of the program.
And regarding the profit margins.
We do.
Cut.
Kind of of managerial.
P&L for them.
Allocates the expenses as best as we can in the debt.
That kind of pro forma EBITDA margin.
Sits just below our overall moving and storage so.
Not quite at the same level as the overall moving in the storage segment, but it's still quite positive.
Within a couple of points.
There is a one quarter lag in the change in marketable securities value of hitting the income statement.
This is for our insurance companies what will the figure would be for the March quarter.
So we.
We have two things going on in both of our insurance companies are affected by the.
The expected credit loss.
The standard or what they call seasonal.
So for the 12 months I think our life insurance segment is going to have a charge of around 900000.
So I think in the fourth quarter, though.
It will actually work out to be about a benefit of 800000.
To get them there I think they were affected more negatively in the first half of the year.
For our P&C company.
It's the smaller adjustment.
It was actually ended up for the quarter ended being positive as they reduce their allowances.
As the.
The securities market and.
In particular of the corporate bond market has improved debt that has the effect of improving our of our seasonal allowance.
And then I think we had one question come in.
From Steve calibrate at Kindred he asked about our cash build.
So at the end of December we were at just cash so excluding the available debt just cash we had $1 billion to $250 million at moving the storage segment.
At March that was $459 million so.
A couple of things going on at first we reduced capex on net our net capex of Capex Wes.
Asset sales was.
It was down 792 million for the nine months versus the previous year.
And then cash flow of operating cash flows as presented on the GAAP cash flow statement were up $405 million.
We don't officially a spouse EBITDA because its the non-GAAP measurement, but I believe if you were to look at our nine months EBITDA was at a record level right now of about $1 $272 million.
That's the $300 million increase in.
For the outlook on the cash.
We're going to remain cautious.
As we try to ramp back up the Capex programs and then also see what happens with Covid and see what direction. The government regulation the tax policy takes.
So.
I think thats all of the all the questions. So if the operator doesn't mind I can just go ahead and wrap up the call right now.
We appreciate everyone's support.
Our next earnings release is going to be for our annual of our fourth quarter results of our 10-K.
And we'll be back we'll file those on May 26, then we will have on our next call on may 27th.
Thank you all for your participation and we'll talk to you of it.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.