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spk00: Good morning and welcome to the Americo Third Quarter Fiscal 2022 Investor Conference 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 touchtone phone. 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, everyone. Thanks for joining us today. Welcome to the AmeriCo third 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 risks 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 America's business and future operating results, Please refer to Form 10-Q for the quarter ended December 31, 2021, which is on file with the U.S. Securities and Exchange Commission. I'll now turn the call over to Joe Schoen, Chairman of America.
spk07: Thanks, Sebastian. We have another quarter of good financial results. I continue to work on our customer experience. My workforce is long since ready for the COVID mandates to cease. They are unnecessarily stressed. Demand, fortunately, is still strong for both our moving and storage products. As you are well aware, there are disruptions in the vehicle pipeline that impact our repair and capex budgets and will likely do so for two or three years. While the OEMs are working hard to resolve this, any relief for this summer is very unlikely. Like many life insurance companies, Oxford has suffered actuarially unpredicted insured debts. However, assets and liabilities are well matched and we will work through this. I appreciate your support and encourage your use of our services. We are only as good as our next customer interaction. But that will turn it over to Jason to walk you through the numbers.
spk02: Thanks, Joe. So yesterday we reported third quarter earnings. $14.35 a share. That's compared to $9.33 a share for the same period in fiscal 2021. Throughout my presentation, my comparisons are going to be for the third quarter of this year versus the third quarter of fiscal 21, unless otherwise noted. Regarding equipment rental revenue, you may recall last year we reported a very strong third quarter, posting an increase of $187 million. but as you can see from yesterday's filing that we were able to build upon that this quarter with an increase of nearly 21% or approximately $167 million. Within the one-way rental market, we continue to see improvements in transactions and to a greater extent, revenue per mile rate. Improvements for our in-town markets continue to be a good mix of transactions and revenue per transaction. Even with some headwinds in January, and when I say headwinds, I quite literally mean poor weather, we have seen growth in UMove revenue continue into the next month. New equipment continues to flow into the fleet, just not at the rate that we would like to see it. Capital expenditures on new rental equipment were $809 million for the first nine months. That's compared to $547 million in the first nine months of last year. In response to the pace of new acquisitions and customer demand, we've slowed the number of units that we retire and sell. This has resulted in growth of the rental fleet this year. Our expectation for net fleet CapEx in fiscal 2022, so this is gross purchases less sales, has been reduced to approximately $495 million for the 12 months. But even with this essentially being an estimate of just the next three months, there is a degree of uncertainty surrounding this, due to availability of equipment for manufacturers. Proceeds from sales of retired rental equipment increased by $41 million to a total of $471 million in the first nine months. Sales volume for the third quarter was about even with where it was last year. However, used truck sales prices have been unusually strong. I would estimate that somewhere close to $2.35 of our $5.02 quarterly EPS improvement came from the sale of retired fleet. Demand for self-storage has not weakened. Our occupied unit count at the end of December increased by 94,000 units compared to the same time last year, and that trend continued into January. Revenues for the quarter were up $36 million, which is about a 30% increase. Our all-in blended occupancy rate for the quarter experienced an increase from 73% in the third quarter of last year to 84% this year. The subset of these facilities that have stabilized, and I'll define that as locations that have been at 80% occupancy or better for the last two years, that cohort of properties increased 320 basis points to an average occupancy of 95.7. We also had 81 more properties fit that definition this year versus the same time last year. We've seen increased revenue per foot indicating improvements to our average rates as well. Capital expenditure spending related to real estate was $783 million for the first nine months. That's up from $365 million last year. Spending in the third quarter was our second largest quarterly investment ever, demonstrating the success that we've had at increasing the pace of investments. We currently have approximately 7.2 million square feet in development actively across about 146 projects. We have somewhere close to 100 properties that we own but we have not yet started building on. And we have somewhere around 90 to 95 properties in escrow, totaling $227 million in purchase price if we elect to close on all of them. Operating earnings at our moving and storage segment increased by $140 million to $404 million for the quarter. Within that, we saw operating expenses increase $116 million. Our two largest operating expenses, personnel and fleet repair and maintenance, accounted for about two-thirds of that increase. As a percent of revenue, both ran almost even with the third quarter of last year. Keep in mind that our operating margin third quarter of last year was one of our better third quarters ever. Several other of our categories that increased to a lesser extent were shipping costs and property taxes. As Joe mentioned, operating earnings at our life insurance company were down 5.1 million for the quarter. This is largely due to mortality losses that you can reasonably attribute to COVID. Well, not what you would hope or plan for. This is a risk when issuing life insurance, and we expect those effects to diminish over time. We continue to improve our cash and liquidity position in anticipation of impending investments and to lock in our borrowing costs for this next development cycle. As of December 31st of this year, we had cash and availability from existing loan facilities that are moving in the storage segment of approximately $2,344,000,000. During the quarter, we entered into another note purchase agreement to issue $600 million of fixed-rate senior unsecured notes in a private placement offering. The weighted average interest rate on those is 2.71%, and they funded in January. Our intended use to these funds will primarily be to expand our presence with new locations, add self-storage, and warehouse space in support of our UBOX program. With that, I would like to hand the call back to our operator, Carrie, to begin the question and answer portion of the call.
spk00: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. The first question will come from Steven Ralston with Zach. Please go ahead.
spk04: Good morning. Morning. Looking at the quarter, we know that the third quarter fiscal quarter is seasonably weaker than the others. But this has been just in line with in the past, especially last year, which you pointed out was unusually strong. So it seems like the underlying fundamentals, being the strong demand and the pricing of the rental equipment and vehicles, is still quite strong. Is that a proper deduction?
spk07: Yes, this is Joe. Absolutely. People are still moving for a tremendously wide variety of reasons, and we're getting our fair share of that business.
spk04: And it seems like you're managing the difficulty in acquiring new vehicles pretty well, upping your maintenance expenses. I know it's a foggy outlook, but you say that it might take at least three years to resolve this. Can you add any more color to this? Because it really seems like you're managing through it as best you can.
spk07: Well, I think we're working very hard at it. But what happens is when you don't buy, you basically have the amount of miles you believe you can run on a piece of equipment. And if you run it on it, you're basically at the end of its life. So we're running a little bit more miles on the equipment is essentially shortening their useful lives. And the way you bring more useful life in is to bring in more equipment. So if we undershoot by 5,000 trucks this year, next year we need 5,000 more trucks in addition to those that we are normally wearing out. So at a point, it becomes difficult just physically to get that addition done. Right now we're not getting it done because of problems with the OEMs, but we build the boxes on about 70% of our box trucks, and that's quite a little manufacturing assembly operation, so they'll be highly stressed as soon as we get access to or chassis from the OEM. I've been through this before, and it takes a couple years to kind of work the bubble out, just the problem. But we understand it. We're working at it.
spk04: And even though you're doing this blocking and tackling in the rental business, how much more time are you spending, management's time, in expanding the storage facilities? Because I've seen it's been quite active.
spk07: I've committed a lot of management time to that. The balance is working out so far. Of course, I have to be careful I don't distract them from our moving customers. Same people do both functions as soon as you get geographically specific. We're doing okay. We just about have this thing ginned up. I want to replace this stuff or add stuff quicker than we have in the last 24 months, and we're getting close to being able to deliver that.
spk04: Thank you for taking my questions.
spk00: Sure, thank you. Once again, if you have questions, you can press star, then 1. The next question comes from Jamie Weiland with Weiland Management. Please go ahead.
spk05: Thanks, another phenomenal quarter, fellas. A couple questions. First on self-storage, can you quantify the rate increases you've been able to achieve over the last 12 months percentage-wise?
spk02: Sure. This is Jason. I look at that at – you have to break it up into a couple different pieces, right? So we have a portfolio of properties that are still trying to stabilize. They don't see quite the rate activity on those, and then you have the properties that are stabilizing. So on stabilized properties, our average revenue per foot for the quarter is probably up close to 6% compared to last year. If you look at asking rents, what we're on average charging a new customer this year versus last year, that's also probably about a little over 6% up.
spk05: Okay. And given the rapid increase in occupancy rates and rate increases, what is your timeframe for a new unit to reach stabilization now? I know it used to be four years, but what is it going down to now?
spk02: Well, when we're mapping out the investment in one of these, we're still assuming five years. However, I think In today's environment, we're seeing some of these ramp up in two and a half, three years.
spk05: Okay. And when I look at similar competitors in the self-storage business, I look at a life storage that has a really similar footprint to what we have as far as owned units and managed units and They have an $11 billion market cap, which is almost equivalent to our entire market cap, yet self-storage only represents 10% of our revenues. How do we close this value gap in that if 10% of our revenues are worth almost what our entire company's trading for, and we obviously have a rather nice truck rental and U-Box business as well?
spk07: You know, I think those are key questions, Jamie, and Right now, what I'm driving on is getting more products so we can put a cap rate on more product. I'm kind of selfish that way, okay? But your question's a good question. It's a question that is regularly discussed at the board level, and we're trying to figure out how to do that, and hopefully we'll have some news for you before the year's out, but we'll see. My time gets spent almost entirely on just driving the business. These other questions are a little bit more just long-term strategies, a little bit more what we work at at the board level. I don't consider myself an expert on what's going to determine our market cap, but we're moving it. I like moving it. I'm a shareholder like you are, so I like to see our market cap up.
spk05: On the UBOX front, I think we had close to 50% growth this quarter, if I read it correctly, versus last year. When does that become its own segment, and how are the profit margins in UBOX enjoying the incremental volume relative to the rest of the company?
spk02: This is Jason. From a management perspective, it kind of is being overseen separately, as any of our other large segments are. From the financial statements, no one else reports their portable moving and storage business publicly. Our requirement is, I think, when it becomes 10% of revenue for a 12-month period, we would do that. We're not close to that right now. Regarding margins, You know, we have estimations of what these programs look like on a standalone basis, but it's really hard. We've talked about this before in the storage business to break that apart. From some rough estimations internally, it's a positive program, and it's very close to the overall operating margin. I would say that we have some quarters in the last year and a half where it operates at the overall margin. Otherwise, it's within a point or two of it on how we're allocating costs. It's been challenged this year with, you know, a big component of that business is the one-way move business, which is shipping these boxes across the country, which has a component of freight costs, and freight costs have been up. Freight costs as a percent of the revenue that we're collecting It's not out of historical bounds, but it's at the higher end of what we've paid over, say, the last 10 years.
spk05: Gotcha. And I'd like to go back once more to the value disconnect, because on marketing your truck rentals, on marketing your self-storage, on marketing your U-Box, if I had to rate you on a scale of 1 to 10, I'd give you something north of 12. But on marketing the stock on a scale of one through 10, I would give you somewhere in lower double digits. And there's, you know, when I look at a company, we've earned over $50 a share in just nine months. You know, I think it's really time to start instituting a regularly quarterly dividend, you know, certainly at least several dollars a share on a quarterly basis. And our trading volume, is somewhat limited. We are a $600 stock. I see no real reason why it would be inappropriate to do a five for one stock split and we'd still be trading north of $100 and create a little bit more trading liquidity within the markets. And I do think it's time to change the corporate name to the world recognized U-Haul that you've built so well. And I think these are just very easy, prudent steps, and the time is right to take these steps to create some more value for all of us, as well as your family and mine as U-Haul shareholders.
spk06: Well, I'm hearing you there, and you may be penetrating my cranium. Sometimes repetitive feedback works. I'm not taking you seriously, okay?
spk05: Very good. And nice job on managing a business. It's been remarkable how you've grown this business in a prudent manner and the profitability you're able to enjoy today and look forward to more tomorrow. Thanks, Joe.
spk00: The next question comes from Craig Inman with Artisan Partners. Please go ahead.
spk01: Hey, good morning. You know, one I'd throw in there, Joe, you mentioned the migration of combustion engines and the press release to electric. And I hadn't really thought much about that. How do you all think about that in terms of the business, the evolution, the OEMs committing more resources to the electric, how your fleet would operate if that becomes more of a... product he used. He thought it would be great.
spk07: Presently, there is no product out there that would work for us. That's number one. There's a lot of talk. Of course, we follow the talk and visit with these people. There's tremendous political momentum behind it, but not quite as much mechanical reality. At some point, this very well may get developed to the point where you can do it. My suspicion is that we'll see a long period of a mixed fleet and I think you'll see that in the whole country with the long period of a mixed fleet and so we'll have time to do that but of course the end result is there's more capital investment in the electric vehicles basically you spend more upfront and you regain another fuel. Well, our opportunity is, you know, we're not buying the fuel every time. So we're not quite as eager to become an early adopter of it as, say, maybe a local UPS delivery man because they know their route. They've got it, I don't know, but I'm sure they've got it down within 20 minutes a day. They know exactly how their routes are coming in. They know the mileage. They can, they can, manage an electric vehicle much more realistically. So where we're letting people go down the highway, it's a little, well, the technology just isn't there yet. So we're monitoring it very closely. We don't have a great push from our customers to offer that. I think our customers at the point it becomes technologically and economically feasible. I think our customers will certainly accept it, but there's no drumbeat at the consumer level, why don't you have an electric truck for us to rent? And if they did ask it, the answer is there is no electric truck. There's a lot of concepts, there's some prototypes, but there really isn't something that you would wanna put into the hands of your or my wife, encourage them to even move 50 miles. So until that comes, we're not gonna do it. But when it comes, it's gonna take a big capital redirection and also an infrastructure. The electrical infrastructure is totally different than the gas and diesel infrastructure. There's a whole bunch of timing issues that are totally different. Our fleets don't typically come back to a home base every night, like let's say, again, I'll use UPS because I think they're a real with it group of people managing their fleet, but they can bring the vehicle back to its home base and they have some idea of what its condition is going to be. And so they can then provide a strategy for how they're going to refuel these batteries, which is not a seven or ten minute operation like it is with a gas engine. So there's a lot of uncertainties it's very muddy but we're monitoring it and we're speaking with as far as I know most of the likely prospects we have a you know some small number of electric vehicles circulating at our technical center and so we're keeping our eyes wide open but nothing's going to happen now other than it's muddy normally when we buy a truck a big truck you're looking at a 7- to 10-year lifespan minimum. And so I kind of have to try to peer into that 7- to 10-year cycle and say, well, what are we going to be re-fleeting with? With the trucks I buy today, what will I be re-fleeting with? And that's very, very uncertain at this time. Unfortunately, that's about as specific as I can be. When it happens, we're going to be there, but it's not happening yet.
spk01: Yeah, that's a great color. And so it's part of the, you're not seeing, though, the issue on getting the trucks is not at the level where the OEMs are committing more resources to the electric now, which is hurting their ability to produce free oil. Those aren't colliding at this point in time.
spk07: I don't really think I have a view of that. I suspect that, but I don't know that. Of course, when you get to the, level, say, of Jim Farley or somebody at Ford, he's very, very focused on the electrification, very, very focused. Now, he has a whole other cadre of people who actually run the plants and buy the parts and everything. So far, they've kind of still, they're still focused on the present products, but this is going to change. There's gonna be conflicts, and that's just normal, so I don't think that's necessarily affecting us today, but at the very high level, I'm not the person who interfaces with Mary Barra for our company, but again, at her level, she's very, very focused on this electrification. There's tremendous political pressure on her, and she's responding to it. So at her level of resource commitment, I'll bet we are getting shorted, but she's not resource committing yet at the parts and labor point of view or the plant-specific point of view where it's impacting us.
spk01: Okay. And I know a few years ago the fleet, you know, obviously was in the newest, best shape it's ever been, and you all hadn't been able to buy up to the level you've wanted on replacement. I mean, is it still ahead of average? I mean, is it still in a position where you've, you know, obviously you're pushing out buying the trucks, which puts pressure on you later, but from a customer experience and a management ability, it's still in good shape?
spk07: Well, I look at this as a long walk. Where we are right now, we've about burned off the excess fat. We have a caloric input that's required to continue. And it's everything we can do to keep doing that. And I'm very eager for the OEMs to come online. And then we know we would build back some of this fat, or whatever you want to call it, back into our physical system, because I feel a lot more comfortable. It's very fortunate we had it. No one knew these COVID disruptions were going to come, but I'm kind of one of those people who's always trying to put away something for a rainy day. And we've had a rainy day as far as buying vehicles, and then coupled with expanded demand, which that wasn't a scenario that I ever thought through. I always thought it the demand would fall if we had a problem like this. In this particular instance, for a host of reasons, demand rose. So we've pretty much, I would say, we're not carrying a lot of fat or unused capacity in our fleet. But you're right. Four years ago, we had a lot, and I was putting more in. But for the last, now, almost 24 months, we've been unable to do that. In fact, we're replacing it lower than the required replacement in our judgment. Now there's some, you can push that a little bit with repair, obviously. And we have a big repair network, and we've ginned it up, and everybody's on high alert, so we're holding our own. But I would really like to see some relief from the OEMs by the fall. Okay. And there's some prospects they'll have some by that time.
spk01: Okay. And then in the self-storage side, just so I got this right, 7.2 million feet in development. And then there's 100 properties owned but not started building. And then on top of that, escrow is 90 to 95. Is that the right?
spk02: Yes.
spk01: Okay. So that 100 properties isn't in the development number?
spk07: No, but land use is a problem, and I'm sure you know that better than I. Land use is totally unpredictable, and so we're at various stages of land use, which is all very frustrating to me because it's a very slow process, and in fact, these cities have used COVID as an excuse to not actually process, literally not process building permits. which is kind of a, you can't go anywhere. Some few cities will let us hire a private processor for them, and we do a lot of Zoom meetings, but the ability to just walk into the building department and talk over a set of plans isn't existing right now in most jurisdictions. In our prior experience, you could always do that. iron some simple things out pretty quickly. So it's just become more time-consuming.
spk01: Okay. And those properties that are behind the development pipeline, they're all about the similar size, so you could think about them. Are they getting bigger, smaller in terms of average?
spk07: Well, commercial property has gone to the moon. Most of this is commercial property. My experience is commercial property is up 100% over 24 months ago. So if you were paying 10 bucks a foot, you're paying 20. If you're paying 20, you're paying 40. It's gone to the moon. Now that's only a component of the cost of a facility. But I don't know that the size is going up, but the dollar is going to go up. The dollar is going up, so maybe not the size. And of course, that has to all be predicated on what we believe is a rate we're going to attract at the time we're actually open, which is a little bit of a guessing game. But we have people who have been doing this for 30 years. They're halfway thoughtful, and so we're trying to be very judicious. Of course, Jason has all his analysts look at these projects, and we're attempting to be judicious and not do uneconomic things. But property's gone up, and in a couple places, we're just going to have to pay up, and then we're going to have to figure out how we're going to get the rate out of the customer.
spk01: And, you know, with the financings, with the private placements, and, you know, obviously the rate is favorable, more favorable than you all had at other points. Does that lower your cap rate going in? Does that allow you to bid more aggressively? Or do you all keep kind of the same hurdle rates?
spk07: We've kept the same hurdle rate unless we make a conscious decision on a property-property basis. We'll take a high dive on this one because we think we can – straighten it out during the 10-year period that most of our financing encompasses. We think we can get it straightened out in anticipation that we may not have such a favorable rate environment in the future. So, you know, that's kind of a vague statement. That's the truth. We're not, a lot of our, well, I would say 98% of our competitors, purchasing competitors for buying storage have already taken the plunge They're there. They're assuming three or so percent interest income for the life of the project. That's not my expectation. Watch me be wrong and then be right. That's not my expectation. Our planning is that we're going to see rate bumps certainly within the next 10 years to a different level. It's all puzzled me. None of it's done what I was taught when I went to school. So I could be wrong. I thought the rates would go up multiple times over the last five years, and they haven't. So maybe some miracle stay low. But no, we haven't dropped our forecast rate, and that has kept us from making some acquisitions that other people have. And OK, that was their strategy. That's about all I can tell you. with a slightly different strategy. But I don't want to miss every opportunity.
spk01: That's good to know. That's great. Good color. Thank you. I appreciate it.
spk00: And this concludes our question and answer session. I would now like to turn the conference back over to management for any closing remarks.
spk03: Well, appreciate everyone's attention today and the questions, and we'll look forward to speaking with you after we report our year-end results in May. Thank you, everyone.
spk00: Thank you. The conference is now concluded. Thank you all for attending today's presentation. You may now disconnect your lines. Have a great day.
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