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spk02: Good morning and welcome to the AmeriCo's second quarter fiscal 2022 investor call and webcast. All participants will be in 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 will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To 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 Sebastian Reyes. Please go ahead.
spk03: Good morning, and thank you for joining us today. Welcome to the AmeriCo 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 the safe harbor provisions of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Forward-looking statements are inherently subject to risk and uncertainties, some of which cannot be predicted or quantified. Certain factors could cause actual results to differ materially from those projected. For discussion of the risks and uncertainties that may affect AmeriCo's business and future operating results, please refer to Form 10-Q for the quarter ended September 30, 2021, which is on file with the U.S. Securities and Exchange Commission. I will now turn the call over to Joe Schoen, Chairman of AmeriCo.
spk04: 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 persons and a 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 in the type and quantity we desire. As a result, maintenance expense must increase. This will also cause some blips in CapEx when replacement units do become available. I have a push on this winter to bring bigger UBOX 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 UBOX container fleet and delivery truck fleet. Our UBOX business continues to grow. We are continuing to expand our inventory of self-storage units. Rent up of existing units remains strong. I am working to accelerate new product coming online. Perhaps more than ever, our continued success is due to the hardworking, 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.
spk01: 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, plus 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 what is desired. We've 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 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 been available to purchase. Our expectation for net fleet CapEx in fiscal 2022 is still around $515 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. Our occupied unit count at the end of September increased by 104,000 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 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 in development across 155 projects. In October, we closed on another 16 development properties, and our acquisition pipeline continues to accelerate with approximately $310 million of deals currently in escrow. That's 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 personnel, the 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 and may start to turn a bit negative going forward. Several of our other categories increased to lesser extents, 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 $2,486,000,000. 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 2.59%. Our intended use of these funds is primarily to expand our presence with new locations, self-storage, and to add warehouse space in support of our UBOX 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.
spk02: 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 speakerphone, please pick up 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.
spk03: Debbie, I'll go ahead and ask two questions that have come in beforehand. Okay. Of artisan partners.
spk02: Okay.
spk03: The first question is, what influence, if any, of course, is the constrained production of new trucks having on truck rental pricing? Would management assume pricing weakens as production comes back? I'm sure this is too simple an assumption, so thoughts on how management views the current pricing environment would be helpful.
spk04: All right, I'll take that. pricing is, rates are up. I had a customer push back real hard on Monday. They paid $669 for a rental that five years previously they'd done for $197. And they pressed me pretty hard, very thoughtful that I had overreached on the pricing. I reviewed it and repriced it at a lower number But what I found was that budget was $900 plus, and Pensco is exactly $1,000 above our rate on the same rental. So, of course, my pricing people said we're already discounting. So it's kind of an uncertain journey here. Of course, our costs of equipment are up, and they're going to continue to go up We're in some kind of an inflationary cycle that I don't understand any better than any of you. But we know from our vehicle suppliers that 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. I think it probably already has had some impact on pricing. I don't believe that the prices I saw from this particular transaction from either our made any sense whatsoever, so I didn't give it a lot of weight, very frankly. I think we still have a pact with the customer to try to be a low-cost provider of household moving and storage services, and we want to try to honor that. But will prices come down as availability increases? I doubt it, because I think what we'll see is inflated costs and that's gonna mitigate the increased availability. Now I obviously don't possess certainty on this, but what I'm seeing with all our various vendors is that there's 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.
spk03: 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 that cash?
spk01: 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 a portion of our Chelsea, New York location. This time around now, we've entered into this private placement type debt, which is 8, 9, 10, and 12-year maturities with the idea that this is going to be working capital to help support the next round of development for the organization. And this next round of development will look a lot more like ground-up development versus the last time around, which was largely conversions with Kmart properties. So we thought that this type of funding better fit that type of property profile.
spk00: Okay.
spk02: The next question in the queue comes from Jamie Weiland with Weiland Management. Please go ahead.
spk05: Hi, fellas. Outstanding quarter. It's amazing what hard work and effort produces in the outcome. On the self-storage side, I'm enthused with your increase in occupancy rates that have gone up literally 500 basis points from March to June and June to September. Is that continuing? Has October shown increased strength? And it looks like it's kind of a straightforward progression.
spk04: Well, I'm going to say to your question, yes. The reason is we're not bringing what I consider enough new product online. We're absorbing product faster than we're bringing it online. So the party will be over if we don't bring more product online. So we run 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 have to see units rented grow consistently, and we don't have enough in inventory to continue at the present pace. Now, the good news is that will raise occupancy percent, but the bad news is it will constrain growth. So we're trying to balance that out. It's a little inexact because normally construction is herky-jerky, but With all this other nonsense in the economy, it's worse than it was five years ago. So it's very, you know, all your plans keep falling apart. You put them back together. But I expect by late spring to have some more product, significant more product online. And that might cause occupancy to slip a little bit. All along our occupancy, and Jason has tried to present this, we have two kinds of occupancy. The stores that have been around a while and then whatever we're able to bring online. So at this time, we're doing a lot of phase two build-outs. You're aware of the Kmart stores we have. Many of them we only built out 50%. So we will, and have been, and will through the rest of winter continue to build out the rest of them, which will make each property cash flow better and be better, provide enough money that we can afford management on-site. So that part of the picture is pretty easy to see. The part is about bringing total roundups online. It's a little more murky, although we have several that are half built at this time, which means they'll be done by late spring, no doubt. So that is kind of, you know, you and I see it just a little bit different. I try to appreciate your view. My view is I need more inventory so I can continue to grow.
spk05: As occupancy rates obviously are improving for everyone in the industry, that goes hand-in-hand with realized rental rates. And as I look at public storage increase, their year-over-year rental rates by 13%, LSI by 14%. Have your rental rates increased by similar numbers?
spk04: No, and a little bit of what they're showing you is a mirage. They cut prices. Well, they cut prices March a year ago. and March a year and a half ago real solidly, we never cut our prices. So you'd have to do a three-year trend on them to know what is comparable. I don't know what their comparable is on a three-year trend, but no, we're not seeing something like 13% increases, no.
spk05: Okay. In the 10Q, you talked about other revenues of... UBOX being the most significant contributor to a $50 million increase. Am I reading that correctly?
spk00: Yes.
spk05: And could you give us a handle on what UBOX revenues are today?
spk01: It's by far the largest component of that. It's not yet 10% of the total revenue that would require us to break it out. And as I mentioned before, since... there are no other public competitors in that space who report any sort of information. We're going to continue to, you know, blend that in with our other revenue number until it's required to be broken out. But, you know, 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, you know, interest income on our short-term cash. It would be income from revenues from some of our ancillary programs like moving help. So UBOX far and away overshadows what's in that category right now.
spk05: And is 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?
spk01: You know, it's that game of how we choose to allocate expenses and how we have that sort of internal tracking set up. We allocate very heavily, so it's typically running a couple points back. But at this point, it's certainly, as we're underwriting new projects, we're finding that the inclusion of the UBOX is certainly helping the economics of our overall moving and storage offerings.
spk05: Okay, and when I see all the new self-storage being open, you really seem to have a much greater UBOX component, or as you build those, you make sure you have room for UBOX. Does that give you a competitive advantage in there, and is that fueling the growth in UBOX at the moment?
spk04: I would say yes. But ultimately, it's just consumers want it. We're going to try to get it to them at a fair price. I mean, there's people who want that kind of a move, and we just need to honor their requests. It's a big country. There's a lot of markets to get this into to where you could say you really have it. I think I could say today that no one has as extensive a network as we do in place. But our network is not as extensive as I can see it being. And the more we get a network, the more 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, we'll see the business continue to grow and hopefully grow faster than the truck rental part of the business. Truck rental's much more mature, relative probably. There are no accurate numbers on market, market share and those things, but just from my experience is that there's more, there's a lot of room to grow in the containerized moving business.
spk05: Okay, and lastly, Joe, In Canada, 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 build-out in self-storage in Canada, is what will you do in the future so those margins in Canada can approach the U.S., or is that not possible just because of the logistics up there?
spk04: I think it's possible. You know, everything is a little bit different in Canada. It's its own country, no kidding. They're very proud of that, as we are of our distinct characteristics. We don't have as strong a storage presence relative to our U-move presence. Until September of this year, I was prohibited from going to Canada for almost 17 months. That had the predictable effect of Okay, so since then, I've been able to get into Canada, and my other management personnel have, and I think we've got Canada running hard and aggressively, but before that would have any impact on product availability is probably 18 months, so maybe March of 23 before you really see this stuff, you know, really percolating through. But we're hard at it. We understand the deal. The basic consumer wants and needs are very similar in Canada and the United States. It's a question of getting up there and getting the product presented.
spk05: Gotcha. Okay. Outstanding numbers. Great job, fellas.
spk04: Thank you.
spk02: This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.
spk04: I just want to thank everybody for their continued support and 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, I always cross my fingers because, of course, it is just that simple. But if you go into one of our stores or when you go into one of our stores and see somebody doing a good job, tell them you're an investor and you appreciate the work they're doing. We're counting on them. So I thank you, look forward to talking to you again in 90 days. Sebastian, any closing comments?
spk03: We look forward to speaking with you in February. Thank you everyone.
spk02: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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