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spk00: Good morning and welcome to the AmeriCo first quarter fiscal 2023 investor call. 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 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.
spk05: Good morning, and thank you for joining us today. Welcome to the AmeriCo first quarter fiscal 2023 investor call. Before we begin, I'd like to remind everyone that certain 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 is 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 AmeriCo's business and future operating results, please refer to Form 10-Q for the quarter ended June 30, 2022, 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.
spk02: Good morning. The truck rental business rate of growth is slowing. It looks like, however, we're going to be able to retain the expanded customer base we developed over the last two years. This has really moved overall business ahead. We will continue at U-Haul to probe markets where we can expand. Our U-Box product and service continues strong growth. We have some factors pressuring margin, as I mentioned last call. Repair and maintenance expense due to a higher mileage fleet than we had in 2020. Repair costs per mile vary with total mileage on a unit. This trend will continue until we can get sufficient new vehicles. Once the OEM spigot is turned back on, it will take perhaps three years or more to normalize.
spk10: Inflation, of course, will negatively impact us as we refleet. We are continuing to expand our self-storage footprint and, to a lesser extent, our self-move footprint.
spk02: Rate cost increases have pressured margins at UBOX and are a significant component of UBOX costs. I expect those will normalize again at some point in the future.
spk10: I look forward to continued success. Thank you.
spk01: Hi, this is Jason. Yesterday we reported first quarter earnings of $17.03 a share compared to $17.60 a share for the same period in fiscal 2022. My comparisons throughout are going to be for the first quarter of this year versus the first quarter of last year, unless specifically noted. Looking first at equipment rental revenue, we had an increase of 5% or about $55 million. This improvement is coming on top of a first quarter last year that experienced normalized growth of somewhere around 18%. During the first quarter of this year, we saw increases in one-way and in-town revenue This was primarily coming from better revenue per transaction. Growth in transactions compared to the first quarter of last year slowed. The availability of new trucks certainly remains a concern for us. On that front, capital expenditures on new rental equipment were $351 million compared to $310 million last year. There is still uncertainty surrounding the delivery schedules for receiving equipment from manufacturers. Our initial projection for gross equipment purchases this year was $1.8 billion about three months ago. Based upon what we've learned so far during the first quarter, we've already reduced this expectation for the year to just over $1.5 billion, and that's likely to continue to decrease as we move through the year. Proceeds from the sale of retired rental equipment decreased by $20 million to a total of $156 million. We're selling fewer trucks, although generally at higher resale values. Performance of self-storage remains strong. Our storage revenues were up $36 million, which is about a 26% increase. Looking at our occupied unit count at the end of June, we had an increase of 77,000 occupied units compared to the same time last year. In addition to the increased occupancy, we experienced growth in average revenue per foot as well, averaging somewhere north of 9%. Our occupancy ratio for all of our storage locations increased 5% to 85% year over year. Within that group, 83% of these locations were operating above 80% occupancy at June 30th, and the average occupancy at those locations was 96%. One of our challenges is to create more opportunities in the self-storage portfolio by producing new units. To illustrate this need, we have 10,400 fewer vacant rooms available to fill at the end of June this year than we did last year. And compared to two years ago, we have 71,500 fewer rooms. For the first quarter of this year so far, we've invested $278 million in real estate acquisitions, along with self-storage and UBOX warehouse development costs. That's up from $184 million last year. If you look out over the last 12 months, this represents our highest level of investment in new properties and development at $1.1 billion of investments. Over this time period, we've added 67,000 new units. That's about 5 million net rentable square feet. About 4.6 million of that square feet came online vacant. We currently have somewhere north of 7.3 million new net rentable square feet being developed across 147 projects. We have an additional 135 or so projects where we own the land or buildings but have not yet started actual construction. Those should result in approximately 8.1 million new net rentable square feet by the time we finish them. And we have close to 90 additional deals that are currently in escrow. In the moving and storage segment, we saw expense growth outpace revenue growth, leading to a decrease in our operating margin compared to last year's historical first quarter high watermark. This resulted in operating earnings in our moving and storage segment decreasing by $1 million to $482 million for the quarter. Operating expenses in the quarter increased $118 million compared to last year. We've highlighted in the press release and Joe spoke to the $32 million increase in fleet repair and maintenance. Personnel costs also increased faster than revenue this quarter at about a 14% rate due to headcount as well as pressures from wage inflation. Personnel, like repair and maintenance, look worse than last year in the first quarter in both dollars and as a percent of net revenue. However, in the context of recent history, if you look back over the last 5 to 10 years, they're still within a normal range, if not at the better end of it. For example, personnel costs, compared to the first quarter of last year, are running about 70 basis points higher as a percent of net revenue. However, compared to the average over the last 5 and 10-year periods, we're about 175 basis points better for the quarter. The next largest increase in cost, Joe also alluded to, which is freight costs for both our U-Box moving product as well as our cost of shipping products amongst our U-Haul locations. With that, I would like to hand the call back to our operator, Danielle, to begin the question and answer portion of the call.
spk00: We will now begin the question and answer session. To ask a question, you may press star then 1 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. Again, if you have a question, please press star one. The first question comes from Jamie Weiland of Weiland Management. Please go ahead.
spk09: Hi, fellas. Nice strong results for the quarter. I wanted to start on self-storage. When you're looking at a 9% rate increase and a 5% increase in occupancy, what does that measure out to in the same store revenue increase in total?
spk01: Jamie, this is Jason. A great question, but I don't have that answer. I apologize. I will give a little more color on the revenue per foot increase. I would say that maybe about 2.5% of that is coming from us having fewer first month respecials or discounting. As we move up in the number of occupied rooms and the people staying in the rooms, you have less of that cost in order to get them in. I think we're seeing, I'm trying to give you a number, but it's, The increase in NOI is at a rate faster than the revenue growth is my estimate.
spk09: Gotcha. Many moons ago, you talked about how long it took to take a new unit out of the ground to make it cash flow positive. It was four years, and then it got close to three years. What do you think it is now from the time you open up the doors of a new facility?
spk01: Mr. Jason, I'll give you the occupancy figure. What we've been running at the last several years is first year you get to 40%, second year you get to 60%, third year 75%. That's advanced now. So we looked at the facilities we opened in the last two years, and we're seeing occupancy at the end of the first year averaging a little bit north of 50%, and then we're getting close to, say, 65%, 70% in the second year. It's moved everything up close to a year, year and a half.
spk02: Jamie, you're probably cash flowing positive at 75% occupancy.
spk09: Okay. Excellent. Excellent. Within the UBOX program, so most of the – UBOX is growing well into double digits, I assume 25%, 30% a year.
spk01: Yeah. If you look at our other revenue line, it's the biggest component of that. It's well into double digits.
spk09: And you have to break that out as a separate entity once it gets to 10% of your total sales?
spk10: Yes.
spk09: So you're not that far away from that at this point?
spk01: Yeah, it's got a ways to go. It depends upon how fast everything else grows in relation to it.
spk09: When I look at that other company you compete with and I look back that they were sold in 2015 for a billion dollars. How does UBOX compare to those other folks in terms of revenues, units out there, and do you think that valuation of what PODs is worth of, excuse me, sorry to say that word, of a billion dollars is what UBOX is actually worth today?
spk02: That's a great question. First of all, we don't see any pods data, okay? Now, if you know a source for pods data, I'd like you to tell Jason and we'll try to get some comparisons because we don't have a good source for it. We have some ways that we try to track it. See, they're still growing, so they're seeing good growth. I would be shocked if they're not worth three times or more than what they sold for in 2015. I'd be shocked. I think they've gone good. This blocks the large market. So I think it'd be a, probably, I haven't tried to look and see what we think it's worth. It's just, the consumer response is strong for it. So while we saw U-Haul growth, kind of slow. We're not seeing that. And these are moving storage customers. I mean, they're not your customer. So there's a customer preference, an unmet customer preference for a box move. So I expect this to grow, and we're investing, so we're putting money in there, basically in more boxes, more trucks, and more warehouses that anticipates further growth. I don't have a value and I don't know if Jason has one. He and I track always. We always want to make sure that we're contributing and not being a parasite to the organization. UBOX is definitely contributing every quarter. We expect it to continue to grow. It's a bright spot for us. I'm one of those people who doesn't want to disclose this additional information until we have to. So, you know, the accountants are kind of watching that ratio. And when we tip over, we'll do what's, you know, what's required as far as disclosure. But tell them I don't want to disclose a lot.
spk09: And the profit margins at UBOX, obviously we've got a spike short-term in freight costs, but the profitability is similar to the corporate average?
spk01: Jamie, this is Jason. You know, it gets down to the game of how you allocate costs, and it's a very hard thing to do because all of these locations, except for maybe three, are co-located deals. Our best shot at it showed about two years ago it was right up upon the overall moving and storage EBITDA average operating margin, and now it's taken a little bit of a step back because freight costs are such a large component of that business.
spk09: And as you're building your new self-storage facilities, it seems like all of them have a significant UBOX component within there. Does that give us a competitive advantage given the number of facilities we have and the number of facilities we're adding? Or is the competition equally as well located throughout the country?
spk02: I think we're moving ahead. And, of course, part of the U-Haul strategy is to have a, you know, footprint across North America, the United States, and Canada. And that's served us well in the U-Haul business strategy, and I think it will in the U-Box. The customer who moves from, let's say, Los Angeles to the Bay Area, sure, there's a ton of them, but some of these customers also move to retire in Boise or move to even a much smaller community. So when we, as we develop our enterprise with the customer, if we can keep a very, very broad net, I believe it's going to continue to be a competitive advantage. I'm sure that BOTS recognizes that. I'm sure they're trying to position themselves to where they don't get left out in the cold.
spk10: market is so vast that we're not really squeezing each other. Okay.
spk09: And lastly, moving over to shareholder value, and something that you had said you were going to be addressing this year, when I look at U-Haul with a $10 billion market cap, and then I compare In the self-storage area, Life Storage, which has a $10 billion market cap of its own and is very similar in size to our self-storage unit. And then I layer on at least a billion for UBOX, so I'm up to $11 billion, which is above our market cap without taking into account the wonderful position we have in truck rental. which is obviously our greatest profit center. The market capitalization of U-Haul is so much less than the intrinsic value from what all our entities are worth. We've done a wonderful job of managing our business, but how are we going to put that into better value for shareholders in the long term, whether it's stock splits, splitting the company, which I don't think we're going to do,
spk02: regular dividend changing the name of u-haul what's in your toolbox that you expect to utilize to increase shareholder value i think you'll get you'll see over the next several months input on every one of those maybe not exactly what you recommend but i think you'll see action on all those again Most of those things are things that have to happen at the board of directors level. You know, you want to know about developing a specific floor. That's totally my control. But some of these other items, you know, we have a, as we're supposed to, we have an independent board, and so I'm not going to go predict events. But I can see the trend, and you've been heard that you're represented at the board level.
spk09: Okay. Thank you, Joe. Wonderful job of managing each of these businesses. It's a pleasure to watch how you chart the course for U-Haul and move it forward. Thank you.
spk00: The next question comes from Craig Inman of Artisan Partners. Please go ahead. Hey.
spk03: I wanted to first touch on the truck rental business and being behind and what y'all perceive for CapEx. And was wondering if it is two to three years behind what you need to do to turn the fleet. Could you throw some numbers out there in terms of how much CapEx that could be? I'm guessing you would look at it as a net number, not a gross number, but some data on what that could look like as we catch up from this period would be helpful.
spk02: I'm going to let Jason answer in a minute, but what happens with the fleet is if you're not fleeting up pretty much at an equal rate all the time, when you go to fleet up, you end up looking like a snake that swallowed a rat. Have you ever seen that? It's got a big lump in it. And then that lump has to work itself out and In this environment, that lump is going to be inflationary as well as just the normal aggregation of increased capital. And the inflation in vehicles, if it's not a market leader, it's right up there with gasoline vehicle costs. And I don't know how long that the OEMs are going to be able to make this pricing stick. But so far, they have. Demand outstrips supply. It's that simple. And so we're going to see an effect of this inflation. Now, on the other hand, we do sell some vehicles, and we're going to get inflated prices for those. But there's going to be a lag in there. So I've lived through this before. What happens is you end up with a bunch of trucks that, let's say, have 20,000 miles and a bunch of trucks that have 80,000 miles. So you're still paying above desired repair expense on the one end. And until you kind of normalize it so you have an even distribution of mileage, you keep getting these kind of, what I'll call, you know, get them to make swallowing right. You get these lumps that have nothing to do with actual work performance, but have a lot to do with how the money gets spread around. With that, I'll let Jason see if he can quantify it. I don't know.
spk01: Sure. Craig, I'll hit this a few ways. So our projected gross capex now for fiscal 2023 is somewhere a little bit north of $1.5 billion. I think we started off the year closer to $1.8 billion. And as we've already gotten, you know, delivery slowdowns, I've moved that number down to about a billion five, a little over a billion five. I would say that of that amount, probably somewhere around 230 million of that is going to be inflation related. You know, comparing what these trucks would have cost us the last couple of years versus going forward. As far as a backup in rotation, the rotation, the ongoing rotation, I'm going to limit the discussion to the box trucks that have the multi-year rotation. And this is a very conservative estimate, probably on the low side, but I think we're somewhere north of 8,600 to 9,000 trucks behind on rotation, which is probably about a 425 to $450 million backup.
spk10: Okay.
spk03: So does that, but y'all mentioned it could take a few years. Is that just because of the OEMs, not because of your wallet or willingness to spend?
spk02: Yeah, it totally has to do, but even let's just say we were normally going to buy 10,000 trucks to buy 20,000 trucks. Well, great. Now you've got 20,000 trucks with zero mileage, and you have 120,000 trucks that are now 20,000 miles over where we had planned for them to be. So their cost stays up until you can kind of get this shingling out of the mileage on the fleet. So it always takes longer than I expect it to. That's been my experience. And we've had this for different reasons over my career. We've had these lumps come through. And when they come through, they're always just, you know, they just are what they are. I have no idea how we're going to be able to price to pass this inflationary cost on to the consumer. So far, we've been able to get some pricing. And if we can continue to get pricing, well, then we're just in some kind of arbitrage situation. It's going to go fine. Assuming we have access to capital, which we should have access to capital. So I just think from your point of view, you need to know there's going to be a lump come through. And as it comes through, don't be shocked when it comes through. But it's not going to reflect any change in the base business. It's just a financial lump. And it impacts all of our expenses from depreciation, hopefully it positively impacts repair expense. So you'll see some, because more will be under warranty. And plus, new vehicles just don't require as much service as higher mileage vehicles.
spk03: Got it. Yeah, that's what I was asking. I was curious how this plays out over the next few years. And obviously, y'all don't have a crystal ball. None of us do. But I wanted to get a sense of what it could look like. And so it matters more, it makes it easier to manage the business having a more evenly mileage fleet based on years and number of vehicles versus a lot of new ones and a lot of older ones. That hurts the management of rotation, of fleet.
spk02: Yeah.
spk03: Okay.
spk02: It impacts it. I mean, again, you're going to wiggle in through this. Right now we've been wiggling for two years. We just can't get the fleet we want. Okay, so we'll. We're adjusting constantly, and we're going to keep trying to optimize the mix. Of course, my druthers would be that the automakers come on at Christmas and get back to work. I have no idea what they're going to do, and I don't think they do either.
spk03: Right. And would your preference be, Joe, like we were before the pandemic, to get the fleet back to a newer state than maybe what average, you know, what the math would indicate?
spk02: Yes. To me, it's kind of, you know, more wood in the shed. If you've got, and it was good, we came into this pandemic with the fleet in the best shape in my career. And so then we've burned some of that down. That's just how that goes. Now, I'm a more conservative person. I would rather build some more reserve because it allows when something really disruptive like the pandemic and the resulting supply chain disruption, when that comes through, you can work through it and not disappoint the customer. The customer ends up getting all this, but if we can manage it, they're not disrupted by it. What we're trying to guard, of course, is our consumer franchise so the customer comes back and back and back. Most of our customers have repeated with us dozens of times. We want them to continue to have a quality experience and keep repeating with us, obviously. I'm very interested in that. Jason's a little more focused on getting the dollars to work out. Of course, I want to make a good profit and everything, but If we serve the customer right, we've always been able to pull a decent profit out, so I would expect it would.
spk03: Yeah, that was going to be a question I'd ask. Are y'all, as the fleet ages, I mean, is the worst customer experience a truck breaking down?
spk02: Well, probably, but it's just everything. You know, the seat sags a little bit. It never gets quite as clean as you want it to be. Eventually, they just kind of get, you know, we do what we call a super clean, blah, blah, blah. But, you know, it's just, it's about like, I don't know if you have a typical at home that there's a car and then the car gets handed down to the kid who turns 16 and it's kind of a little bit ragged, although the day before it went to the kid, it was working for one of the parents. So this is kind of just how vehicles are. And if all your vehicles are in that situation, then it's not a great happy household. So we want to keep this. We want a more blended mix. And right now we're losing some of that. stored up value or stored up customer experience, we're managing it okay. If this continues on for four years, we're going to have to really figure this out. And we're looking at that alternative because nobody, I think, knows what's happening with vehicles for a fact. So we're at a high level. We're trying to say, well, what what would we do should this occur?
spk03: What metrics do you all have beyond just the mathematics of getting business to keep a pulse of the customer and their happiness or their satisfaction with the product, with rental?
spk02: We survey people, obviously. One of our best metrics on that is we send the customer a text or an email request for a review. It's about five questions. And then it has a blank space, so they can rate us one to five stars on specific things. And we then publish every one of those to the customer, so they can now, by location, view those reviews. So I, in running the company, encouragement all my managers to manage off the reviews. When the customer says, Mary should get a raise, well then, maybe Mary deserves a raise. When the customer says, you know, Steve sits on his butt all the time, well, and they say things like that. You can get a pretty good feel for them. And of course, I can search that database for keywords, different thoughts, An example is a year ago, maybe a year and a half ago, I started noticing the word kind in the reviews. They were telling me that our staff was kind. I had never considered in a conscious way how kind our staff was being of value to the customer. But the customer, I then started to really search it. It's overwhelmingly a value the customer has been looking for kindness. And that's not normally something that we say, hey, let's be kind today. But since learning that now for the past year or a little more, I've been pushing kindness. People in this country have been stressed. And I think the same is true in Canada. And moving is already a little bit stressful. So you combine the overall stress of the country and then throw in the stress of moving. The customer wants kindness, and I learned that purely from studying reviews. So we have a pretty good, I mean, of course we're looking at revenue transactions by location, and then we aggregate them into subcategories. So if someone's revenue or transactions is dropping, you've got to say, well, something's going haywire, and you can immediately start to probe into that. So I would say looking at revenue and transactions and then studying reviews gives us a pretty good idea of what the consumer thinks of you all.
spk03: And that metric hasn't been getting pressured with the aging trucks and just the labor issues and all that?
spk02: Well, sure, there's comments on that all the time. I had people within the last week, you know, that they go to the store, there's one person there. Well, that's not working so good. So when they're not taking money, they're outside and the store is empty. And I mean, you know, it's not the customer experience that we planned on, but I mean, to me, I, I, I thank the person. I said, thank God you came to work. If you hadn't come to work, there'd been nobody here today. And so this, I think is every retail operation I've been in. I was in a restaurant here this week and they announced they were closing Sunday. And the reason was they couldn't staff it. Okay. Uh, we have yet to have to staff to close stores because we can't staff them, but many stores are down staffed. And again, if you can get a, an atmosphere of kindness and goodwill, it's a do it yourself business. People can work this out. However, if someone comes in, who's very demanding and thinks it's a concierge business, well, they're going to be a little disappointed. And so, and those customers come in and we want them, but the, uh, You know, there's a lot of give and take going on right now at the retail level, and U-Haul's not immune to it.
spk03: Right. Those are great thoughts. I guess I'll lend my voice to the, you know, Jamie's comments regarding y'all's creation of economic value over a long stretch of time now in the markets space. at moments has rewarded it and at moments hasn't. And one of those moments is probably now where the stock looks disconnected from the economic value created. And yeah, I don't want to beat the drum forever, but any other thoughts on just your stance on kind of the stock versus the business value and the disconnect there? You know, regular dividends or dividends just tied to the economic output of the business. You know, I'm fishing around in there, but I'm curious.
spk02: Well, as you probably know, my entire network is connected to the value of the stock of this company. So I don't have some big cash hoarder and I'm not invested in some other operation or have a stock broker or something like that. I just have jobs of this stock, and I'm very much interested in continuing to grow. So I'm hearing you. I don't think that managing stock values is a particular point of expertise for me, so when people like you or Jamie speak, I try to listen because I figure that's kind of a little bit your business. Now, how that plays out at U-Haul is my business, but the general principles are probably better understood by you and Jamie and other people who are on this call. So I'm trying to listen to them. And as I told Jamie, I think he's being heard. But I'm not in a position to say X, Y, or Z, really, because they are board decisions. And I just, you know, the board wanted me to speak on a subject they'd tell me to. So until they do, I'm not speaking on the subject.
spk03: Okay. Yeah, and I'm not trying to get, you know, But y'all shouldn't be managing to your stock price. It's more the disconnect between the economic value and the value you're creating in the market and how that multiple is expressed that I was hinting at, not that you should pay attention to your stock price.
spk02: And that has to do with how effectively we communicate. We be in U-Haul, and I hear you on that.
spk03: Okay. We need to tune that up. Great. Well, that's all for me. Thank you for the time.
spk00: The next question comes from Adam Suess of Yakman Asset Management. Please go ahead.
spk06: Hi, everyone. I wanted to follow up one of my questions on the last call on the truck side. If I look at rental revenue per truck each year, and I know that's not perfect, but it's the data that I have, there was a big step up in the last two years, especially the last year after that metric being flat for almost a decade. And I know there's lots of moving pieces, but how much of that do you think is enduring from a sense of pricing? How much of that do you think you can hold on to? You obviously provide a tremendous amount of value to the customer. You should be charging for it. But how much risk is there that that reverts back to that prior sort of decade average?
spk02: Well, I don't think it's going to revert back. And that was my comment and my prepared comments is that it looks like we're going to hang on to this step up in activity that we've seen over the last 26 months. It looks like it. Now, you know, two or three months don't make a trend, but it looks like it. While the rapid growth in transactions has slowed, the question is, are these people going to come back to us? Did we get them into our customer base in a way that they perceive it will be in their best interest to do business with us next time they have a need. And I think the answer is generally yes. So what you've seen over the last two years, in addition to just the uptick in total transactions, has been we've had some pricing ability in the market. And we've tried to do that without gouging.
spk10: It's kind of a little bit of a
spk02: But, of course, as demand goes up, there's more customers who will pay a little bit higher price. And so we have been doing that and trying not to gouge. I would say in a couple of places I had to actually phone some of my local managers back. I felt they were trying to overplay their pricing hand. They were going to leave the customer with a bad taste in their mouth. just because there was only five trucks left in town doesn't mean you can double the rate. I mean, you can double the rate, but that's not our strategy. So I think that we are going to hold on to the customers. The pricing is confused on inflation for me. And I think as we see what happens with our cost of acquiring equipment, the question is can we pass on that increased cost. I think we're going to have to try. I mean, that's just the fact. We've got no choice. And customers are somewhat accepting of pricing increases. I'm always watching at the grocery store. I always speak to the clerk. Well, that was kind of expensive or whatever, and see kind of what they say. Yeah, everybody's complaining about it. Try to get a feel for them. But people right now understand that prices are going up. and companies have to raise their prices due to these inflationary pressures. Right now, vehicles have inflated, I think, right up at the head of the list for the economy. I don't have a whole bunch of statistics, but those prices have really gone up, and customers are paying it. Now, we'll see when... I read an article last week or something that said GM had 100,000 cars parked in their yards waiting for two or three chips. I believe that's true. And then, of course, the rider said, well, let's see what happens when those 100,000 cars hit the market all at once. Well, I don't think it'll change the thing. I don't think 100,000 cars is going to be, you know, drop in the bucket. So until the automakers get their quantities of. There's going to be this inflation, and we're going to have to pass along, and I'm a little uncertain about it, although we're watching it, and which one's going to outpace. Right now, the automakers have kind of, for my money, abused their pricing authority. They're able to get it, and they're getting it. I don't know if you've shopped a new car or anything lately, but it's pretty much a one-way experience. The consumer doesn't carry much leverage in that transaction. I think the car makers have abused it and I think they're going to have to pull back. That's my opinion. The next two years is going to tell the story.
spk06: The follow-up on that on the moving business side, the press release mentions customers have choices. If I look specifically on the truck side, Most of the public competitors have been shrinking their fleet, the number of trucks that they own, and they definitely don't have the mind share as the U-Haul brand, which I think is extremely valuable. How would you compare the competitive position and market share of U-Haul on the moving side, especially maybe thinking about one-way moves, versus five or ten years ago?
spk02: Well, we're up a little bit in share. But kind of the wonderful thing about capitalism is when someone sees someone being successful, they all run in. So there are a number of enterprising people who are running into our business and attacking it. You know, clear up to the reorganized Hertz company. They now have decided since they were able to get a clean slate that now they should go back into the truck business. Well, Now, that's where Penske got in business was he took over the old Hertz fleet. Now Hertz is getting ready to commit ritual suicide by coming into our business. But they'll come in here, and they apparently have financing. They've got juice. So they're going to come in, and they're going to push around. And we're going to have to deal with it. So there's plenty of people with money who look at this and think, well, hell, if U-Haul could do it, any fool could. So they're going to jump in.
spk10: I hope the customer sticks with us, obviously.
spk02: It's just capitalism. I tell all my people, you have to make U-Haul the best choice for the customer. When you think you have some market dominance, you're just kidding yourself and you're going to get comeuppance. We have to continue with our basic strategies to create a value for the customer. All through the pandemic, what I preached with my Retail teams, they needed to wow the customer. We use that W-O-W, wow the customer. Why? Because they have a choice, and even though you're the only guy open today, that won't be always. And they're going to remember how they were treated when you were the only person in town. And I've had a lot of people say that to me, you know, social friends, that they're going to remember how Company X or Company Y treated them. and I hope they remember us, and I hope they remember us in a positive manner. When I see the competitive landscape, there's another one hiding around every tree, literally. To me, I think that there's more competition because of the advent of the internet and alternative ways of coming to market. Of course, Uber and Lyft are wonderful examples of great success. They've increased value to the consumer, and they've been more or less supported by the consumer. So there's any number of people who think they can do this better. And as I said, I don't know, five or six years ago, our job is to be the disruptor in the industry, not be disrupted. And so we have massive, what we call a 24-7 initiative, so you can rent a truck 24-7, 365. In other words, it's not just contactless. There's nobody there. It's 11 o'clock at night. We're doing a considerable business at that. Of course, we keep trying to expand the breadth of our products, presentations, so more locations. And locations helps. So there's a lot of things we're doing to try to make sure that we come, you know, get
spk10: four or five or six years from now, we're still a preferred choice for the customer. But there's plenty of competitors.
spk02: Enterprise is massive. They so lust to be in this business, they can't hardly, they drool.
spk10: So good for them. It's America. Let's go out and compete.
spk06: Switching gears on to the self-storage side, you've been investing heavily. It's seemingly very good returns, given the metrics you talked about earlier. And there's some concerns in the industry, just the amount of capacity, the amount of development that's coming online. And it's certainly not yet showing up in the numbers. Everybody's still filling up like crazy. But if you think and look out three to five years, how big of an opportunity is for U-Haul stores do you think there is? How much square foot could you actually bring online before you sort of saturate your existing footprint? And is the holdup capital? Is the holdup the availability of good locations? What would sort of prevent you from getting there?
spk02: I think the holdup is execution.
spk10: The storage market is very geographically specific.
spk02: So you can always find a saturated market and always find an unsaturated market. On top of that, the storage market still hasn't got full consumer awareness, in my judgment. So when we first started this, I was 23 or 24 years old, and I postulated that the market could be as one square foot per person in the United States. Okay, well, now we've got markets with 22 or 25 square foot per person. So I've been a poor guesser, I guess would be. I've underestimated the market most of my life. But it's very geographically disparate. So New Jersey was a really good market, let's say, 7, 8, 10 years ago. If you could get in there, you're going to really clear some profits. And now it's a little less so because Of course, costs have kind of caught. Everybody's competed and brought it up. So I'm the one who always thinks the market's going to get a little tremor here. But this wide availability of capital at low rates, and even at, you know, let's say the rates are 5% or something. Now, they're still very low in any sort of a perspective. So I don't think that the rates are going to drive people off. There's money chasing every deal almost. I think there's a lot of room there, although, as always, the better people are better at site selection, the people who are better at operations are going to do better. My goal is to be better at site selection and better at operations. That's just kind of general business. I don't think the market is going to be the limiting factor on any nationwide parameter. But in any given city, sure, it absolutely can be. And we've seen it over the years where too much building and rates drop for three years or something, and then they kind of creep back up.
spk06: Okay. Well, congrats on the results, and good luck finishing executing for the rest of this year. Thanks, everyone.
spk00: The next question comes from Steven Ralston from Zacks. Please go ahead.
spk04: Good morning. Morning. Morning. Congratulations on a solid quarter. I've got two questions. One's a little long-winded. The other one's really short. And please tell me if I'm wrong somewhere. It seems like the quarter, you still have this very strong pricing trend. dynamic in place for your business. And the moving rental business has basically gone down to like a mid-single digit, so the good solid demand. You have two exceptions to that, and that's the U-Box business and self-storage, which is just going double digits. It seems the challenges are that your repair costs and your personnel expenses. And, of course, the shipping, you said, was associated with the freight costs with the U-Box. Those items seem to be driven by an external environment. In other words, you're waiting on new vehicle deliveries. You're having inflationary costs with personnel. And even though it's very comforting that you've lived through this before, isn't it a little different or slightly different this time in that almost 20% of your business, your revenues, are in these 20% to 30% growth industries, self-storage and UBOX, and that might mitigate any sales. let's say, cyclicality in the business this time around?
spk02: I've been driving on that, hoping that is true for over 20 years, consciously. Now, how that will play out, only the future will tell.
spk10: I can tell you if you go to a micro or more micro example, so let's just say St. Louis. Okay, in St. Louis,
spk02: Absolutely. Both of those things are giving us more stability and less cyclicality. And let's say Calgary. In Calgary, we've not done as good a job with either the self-storage or the U-box, and so we haven't addressed that cyclicality as well as we can. So we have opportunities, and that's how I look at it. But absolutely, if If you back this up 40 years, 40 years, as soon as September comes, bam, it starts laying off people. It's that simple. Call it what you want to call it, but we're going to have to go through the winter, and we don't have enough revenue to carry the team. We now have enough revenue if we're careful to carry the team, and the more those two businesses grow, then the
spk10: the more we're going to have that ability. I think you're seeing the landscape pretty well.
spk04: I think I've been on this call almost three years now. There's always the question of when you break out UBOX. When I look at the numbers, even though it's growing faster, It hovers between 7% and 8.5% of your revenues, and that's just other revenue. There's other things in there. It seems like it would take at least mathematically two or three years before that even gets over 10%. And you probably don't have to break it out until it's actually on an annual fiscal basis. So we're talking like two or three years out minimum. Does that seem about right to you?
spk02: I haven't tried to run that math, but it sounds about right. Again, the accountants are monitoring that. I'm not actually monitoring that.
spk04: Okay. I just want to make sure I'm not missing something there. Because I know I asked that question quite a while back, but now that I see the math on it, it just seems like it's not going to happen soon. It's great that you have, you know, 25 to 35% growers there, but, you know, it's going to be a while before you break it out because the other one is so large and dominant.
spk02: I'm not going to break it out, not decelerate. I'm all for, I mean, I'm not going to break it out. We can grow this thing. I'm fully committed to growing it. My son, Sam, runs the UBOX division. He's there for good reason because that's He's getting his creds, and he's learning the business from the minute detail, and UBOX is a big part of our future, and I want to have him be fully versed in that future.
spk04: Thank you for taking my questions. Sure.
spk00: This concludes our question and answer session. I would like to turn the conference back over to management for closing remarks.
spk01: Thanks, Danielle. I'd like to thank everyone for participating in the meeting, and I wanted to take this opportunity to remind you that on Thursday, August 18th, we have a few important meetings for shareholders. At 9 o'clock a.m. Arizona time, we're going to start off with our annual shareholder meeting. Once again, this is going to be a live video feed broadcast over the internet, and we encourage you to participate that way. And then two hours after that, at 11 o'clock Arizona time, we're going to do our virtual analyst and investor meeting, where we're going to have executives available for a broad-range panel of questions and answers. Please feel free to start submitting those questions to Sebastian ahead of time, and we look forward to speaking to you in a few weeks. Thank you very much.
spk00: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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