Q2 2022 Amerco Earnings Call
Good morning, and welcome to the AMERCO second quarter fiscal 2022 investor call and webcast all participants will be in listen only mode.
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Please note. This event is being recorded I would now like to turn the conference over to Sebastian Reyes. Please go ahead.
Good morning, and thank you for joining US today welcome to the America <unk> second quarter fiscal 2022 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 it.
Safe Harbor provisions of section 27 eight.
Securities Act of 1933 as amended and section 21 E of the Securities Exchange Act of 934 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 Americas business and future operating results. Please refer to Form 10-Q for the quarter ended September 32021, which is on file with the U S Securities and Exchange Commission.
I'll now turn the call over to Joe Sean Chairman of America.
Thanks Sebastian.
Well, we had another good financial report most of my teams have meaningful direction and are hard on their objectives.
Attracting and retaining team members remains a struggle.
We are blessed with many long term portions in the company work ethic that is attractive to many people.
As I have related before.
General Motors and Ford.
Are unable to supply U haul with replacement trucks, and the type and quantity we dissolved.
As a result maintenance expense must increase.
This will also caused some blips and cap ex and replacement units to be followed.
Bill.
Yeah.
I have a push on this winter to bring bigger U box warehouses online.
And to expand the number of warehouses.
I expect some results by late spring.
We are also working to increase the size of our U box container fleet and delivery truck fleet.
Our U box business continues to grow.
We are continuing to expand our inventory of self storage units rent.
Rent up of existing units remains strong.
I am working to accelerate new product coming online.
Okay.
Perhaps more than ever our continued success is due to the hard working nimble teams. We have in every phase of our organization.
Should you visit one of our locations and witness a team member going above and beyond give them a word of encouragement they need it.
I value your continued support Jason will now walk us through the numbers. Thanks, Joe.
So yesterday, we reported second quarter earnings of $20 90, a share compared to $13 58 a share.
For the same period in fiscal 2021.
Throughout my presentation. The majority of the comparisons are going to be for the second quarter of this year compared to the second quarter of last year unless otherwise noted.
Starting off with equipment rental revenue, we saw an increase of nearly 27% that's approximately $248 million.
The additional revenue came from a combination of growth in transactions and increased revenue per transaction, which was due to both more miles being driven.
And average rental rate per mile.
We have seen growth in U move revenue continue for the month of October.
We are taking in new equipment from our manufacturers, but as Joe mentioned at a rate slower than desired.
Also slowed the number of trucks that we're retiring and selling.
Capital expenditures on new rental trucks, and trailers were $548 million for the first six months.
That's up from $395 million in the first six months of last year.
Our original plans were skewed heavier towards.
Heavier growth in the first half of this year there is still a possibility of having a relatively having relatively good acquisition activity over the second half of this fiscal year.
However, since we initially set our fleet plan before the year started.
Given customer demand, we would have increased the size of our orders to be more in line with customer activity had the equipment available to purchase.
Our expectation for net fleet Capex in fiscal 2022.
It's still around $550 million.
But that's subject to manufacturer availability and quite frankly could go up or down.
Proceeds from the sales of retired rental equipment decreased by $10 million to a total of $300 million in the first six months of this year.
For the trucks that we do choose to retire and sell the market for these units remains strong.
Demand for self storage continues to be steady or occupied unit count at the end of September increased by 104000 occupied units compared to the same time last year.
While revenues were up $38 million, which is about a 33% improvement for the quarter.
Our all in blended occupancy rate for the quarter experienced an increase from 72% in the second quarter of last year to 84% in the second quarter of this year.
If you look at the subset of these facilities that have stabilized under the definition of of being at 80% occupancy for the last two years.
Those locations occupancy increased about 280 basis points to 96, 5%.
This group of properties that fall under this definition also increased by a count of 82 this quarter versus how many qualified last year at this time.
We have also seen increased revenue per foot, indicating improvements to our average rental rates.
Capital expenditure spending related to real estate was $444 million for the first six months.
That's up from $226 million last year at this time.
Our goal has been to increase the pace of investment and we're seeing some success at doing that.
We currently have approximately $7 3 million new square feet of development across the 155 projects.
In October we closed on another 16 development properties.
Our acquisition pipeline continues to accelerate with approximately $310 million of deals currently in escrow.
Around 125 properties.
Operating earnings in our moving and storage segment increased by $182 million to $556 million for the quarter.
Operating expenses saw an increase of $120 million.
In spite of this increase we still saw an improvement in our operating margin.
Our two largest operating expenses personnel and fleet repair and maintenance accounted for approximately half of the increase.
For personality increases are less than the revenue improvements, thereby helping the operating margin.
The positive margin impact of fleet maintenance that we saw in the first quarter narrowed during the second quarter. It may start to turn a bit negative going forward.
Several of our other categories increased to a lesser extent, including shipping costs property taxes.
And maintenance for buildings and non rental equipment items.
We continue to improve our cash and liquidity position as of September 30th of this year.
Cash along with availability from existing loan facilities at our moving and storage segment totaled $2.486 billion.
Included in that was during the quarter that we entered into a note purchase agreement to issue $600 million.
Of fixed rate senior unsecured notes in a private placement offering.
The weighted average interest rate was 259%.
Our intended use of these funds is primarily to expand our presence with new locations self storage and add warehouse space in support of our U box program.
With that I would like to hand, the call back to our operator Debbie to begin the question and answer portion of the call.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you are using a speaker phone. Please pickup your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will.
Pause momentarily to assemble our roster.
Yeah.
Debbie I'll go ahead and ask two questions that have come in.
Beforehand, Okay.
Artisan partners Okay.
The first question is.
What influence if any of course is the constrained production of new trucks, having on truck rental pricing with management assume pricing weakens as production comes back I'm sure. This is too simple assumption so thoughts on how management views the current pricing environment would be helpful.
Alright, I will take that.
Pricing is rates are up.
I had a customer pushback real hard on Monday they paid.
$669 for rental that.
Five years previously they've done for $197.
And.
The prestige pretty hard great thoughtful glide.
Overreached on the pricing I reviewed it.
Yes.
Repriced at a lower number.
But what I found was.
The budget was $900 plus.
Okay.
Gibson exactly one.
Above our read on the same rental.
So of course my pricing people.
Said, we're already discounting.
So it's kind of a.
And uncertain journey here of course, our cost of the equipment.
And they are going to continue to go up.
We are in some kind of an inflationary cycle.
But I don't understand any better than any of you.
But we know from our.
Vehicle suppliers that they are they're going to be passing on considerable costs over the next probably two years.
So I think it's going to have to have some impact on pricing as you probably already has had some impact on pricing.
I don't believe that the prices I saw for them and.
In this particular transaction from either our competitors may.
It made any sense whatsoever.
I didn't give it a lot of wheat, frankly, I think we still have a pact with the customer.
To try to be.
Low cost provider of household moving storage services, and we want to try to honor that but.
Well prices come down as.
As availability increases I doubt it.
Because I think what we'll see is in fleet costs.
That's going to mitigate the increased availability.
Obviously don't possess.
Certainty on this but what I'm seeing on.
All our.
Various vendors is that there is more cost increases on the horizon.
And we've been.
Served up a lot of price increases that of course, we're pushing back on sometimes successfully sometimes not.
So that's kind of an overview of it.
Great and then the second question, Jason you kind of alluded to this cash is stacking up on the balance sheet, which is positive what is management's plan for all of that cash.
So.
Our goal has been to.
Begin reinvesting back into real estate. So we had made a big push several years ago with the infusion of capital from the sale of the.
A portion of our Chelsea New York location.
This time around now.
Entered into this private placement type debt.
Which is eight nine.
10, and 12 year maturities with the idea that this is going to be working capital to help support the next round of <unk>.
Development for the organization in this next round of development will look.
A lot more like ground up development.
Versus the last time around which was largely conversions Kmart properties.
So we thought that at this type of funding better fit.
That type of property profile.
Okay.
The next question in the queue comes from Jamie Wilen with Wilen management. Please go ahead.
Hi, Fellows outstanding quarter, it's amazing what the hard work and effort.
Producers in the outcome.
On the self storage.
Enthused with your increase in occupancy rates that have gone up.
Literally 500 basis points from March to September March to June and June to September.
Is that continuing.
How is October shown increased strength and it looks like it's kind of a straight.
Progression.
Well I'm going to say to your question. Yes. The reason is is we're not bringing without.
But I consider enough new product online.
Absorbing product faster than we're bringing it online.
Party of the over we don't bring more product online.
So we.
We run a real hard to rooms rented Jamie instead of.
Occupancy percent of course, we have to have enough occupancy to pay our bills and everything but we.
We have to see.
Units rented grow consistently.
We don't have enough inventory.
To continue with the present pace now.
Okay.
The good news is that will raise occupancy percent, but the bad news.
It will constrain growth so we're trying to balance that out.
It's a little inexact, because normally construction, Turkey, jerky, but with all this other nonsense and the economy, it's worse than it was five years ago. So it's very.
All your plans keep falling apart and you put them back together.
<unk> bye.
Late spring to have some more product significant more product online.
And that might cause occupancy too.
Slipped a little bit all along our occupancy adjacent has tried different incentives.
We have two kinds of occupancy the stores at <unk>.
I've been around a while and then.
Whenever we're able to bring online so.
At this time, we are doing a lot of phase II build outs youre aware.
The Kmart stores, we have many of them, we only built up 50%.
So we will.
And have been through the rest of the winter continue to build out the rest of them.
Which will make each property.
Cash flow better.
Be better.
Okay.
Provide enough money that we can afford management on site.
So.
That part of the picture is pretty easy to see the part is.
How about bringing total ground ups online is a little more murky. Although we have several that are half build at this time, which means there'll be done by.
Late spring no doubt.
So thats kind of.
You and I see it just a little bit different.
Try to appreciate your view.
My view is I need more inventory so I can continue to grow.
Okay.
As occupancy rates, obviously are improving for everyone in the industry.
The dosing is a hand with realized rental rates.
And as I look at public storage increase there year over year rental rates by 13% LSI by 14%.
How have your rental rates increased by similar numbers.
And a little bit of what theyre showing us a mirage.
Cut prices, while the cut prices.
March a year ago.
And March a year and a half ago real solidly.
We never cut our prices so.
No.
You'd have to do a three year trend on them.
What is the comparable I don't know what theyre comparable is on a three year trend.
But no we're not we're not seeing something like 13% increases now.
Okay.
And the 10-Q, you talked about other revenues of U box being the most significant contributor to a $50 million increase am I reading that correctly.
Yes.
And could you give us a handle on what your box revenues are today.
It's by far the largest component of that is not yet.
10% of the total Rev.
Revenue that will require us to break it out and as I mentioned before.
Thanks.
There are no other public competitors in that space, who reported any sort of information we're going to continue to.
Sure.
Blend that in with our other revenue number until it's required to be to be broken out but.
It's starting to be a big enough number where you can kind of see the movement there because.
What else is in other revenue would be.
First income on our short term cash it would be income from our revenues from some of our ancillary programs.
Moving help so you box faraway overshadows looks in that category right now.
And is there.
Their percentage increase greater than the corporate increase at this point.
Yes.
And.
Historically, you said their margins are all in pretty close to historical corporate margins for everything else is that still the case.
That game of how we choose to allocate expenses and how we have.
That's our internal tracking setup, we allocate very halfway so it's typically Ryan a couple of points back.
But.
At this point, it's certainly as we're underwriting new projects, we're finding that the inclusion of the U box is certainly helping the economics of our overall moving and storage offerings.
Okay.
I see all the new self storage being open you really seem to have a much greater U box component or as you go.
Build those you make sure you have room for your box does that give you a competitive advantage in there and is that fueling the growth in U box at the moment.
I would say yes.
But ultimately.
Consumers want it.
Going to try to get it to them.
Fair price.
There's people, who want that kind of a move that we just need to.
Two.
Honor their requests it's a big country there is a lot of.
Markets to get this into where you can say you really have it.
I think I can say today that no one has.
<unk> network as we do in place.
But our work.
<unk> is not as extensive as I can see it.
And.
The more we get a network.
So more of the customer sees that as.
A viable alternative.
So we have to continue.
To establish.
A physical presence in a number of.
Cities and towns and I think as we do that.
You will see the business.
Continue to grow and hopefully grow faster.
In the truck rental part of the business truck rental is much more mature realm.
Relative properly.
There are no accurate numbers on market market share of all states.
Just from my experience there's more.
There's a lot of room to grow.
Containerized moving business.
Okay and lastly, Joe.
While the business is very very profitable the profit margins are not as great. As they are in the states is there anything that you can do in the future.
And you don't seem to have much of.
A buildout in self storage in Canada.
What would you do in the future. So those margins in Canada kind of approach the U S or is that not possible just because of the logistics up there I think it's possible.
Everything is a little bit different in Canada.
One country no kidding.
We're very proud of that as we are of our.
Distinct characteristics.
<unk>.
We don't have as strong a storage presence relative to our human presence.
Until <unk>.
September of this year I was prohibited from going to Canada or.
Almost 17 months.
Had the predictable effect.
Okay. So.
Since then I've been able to get into Camden bother.
Management personnel have what I think.
We've got Canada.
Running hard and aggressively but before that would have any impact on product availability.
18 months so maybe.
March.
'twenty three before you really see this stuff.
Really percolating through but we're hard at it we understand the deal the basic consumer.
Wants and needs are very similar in Canada, the United States. It's a question of getting up there in getting.
The product presented.
Got you, Okay outstanding numbers, great job fellas.
Thank you.
This.
<unk> our question and answer session I would like to turn the conference back over to management for any closing remarks.
I just want to thank everybody for their continued support repeat my request.
I Hope you go into one of our stores from time to time, we're only as good as our last visit which when I say that always cross my fingers because of course it is.
It is just that simple but.
If you go into one of our stores are when you go into one of our stores to see somebody doing a good job telling me or investor. We appreciate the work Theyre doing.
We are counting on them.
Thank you look forward to talking to you again.
In 90 days.
Sebastian a closing comments, we look forward to speaking with you in February Thank you everyone.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.