This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Please stand by, your program is about to begin. If you need assistance during your conference today, please press star zero. Good day, everyone, and welcome to today's U-Haul Holding Company first quarter fiscal 2025 investor call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star one on your telephone keypad. Please note this call is being recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Sebastian Reyes. Please go ahead.
spk06: Good morning and thank you for joining us today. Welcome to the U-Haul Holding Company first quarter fiscal 2025 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 the company's business and future operating results, Please refer to the company's public SEC filings and Form 10-Q for the quarter ended June 30, 2024, which is on file with the U.S. Securities and Exchange Commission. I'll now turn the call over to Joe Schoen, Chairman of U-Haul Holding Company.
spk08: Good morning, and thanks for taking your time to participate today. The increased cost of new rental trucks is expressing itself in our P&L in the form of a decrease in gain on sale and increased depreciation. We have so far been unable to pass along these increased equipment costs to the consumer. As you all know, automakers have been inflating the cost of internal combustion vehicles to subsidize electric vehicles. These inflated costs are not being supported in the resale market. As we have discussed, it puts you all in a pinch On those vehicles, we turn after 12 to 24 months, mainly pickups and vans. We remain focused on reversing the decline in moving equipment transactions. It is looking like we are finally getting traction over the same period in the prior year. While U-Haul can't get people to move, we can provide them with a better product and service once they are considering moving. The market is very competitive and the consumer has choices. We continue to see gains in self-storage, while many large competitors are not presently doing so. However, self-storage remains a close contest. The U-Haul team will remain customer-focused to win additional business. We have continued to add self-storage units at a pace faster than we are renting them up, I still believe this is the right course. U-Haul has an outstanding team at the customer facing level. We will continue to work to be the customer's best choice. Now I'll turn the call over to Jason to walk us through the numbers.
spk03: Thanks, Joe. Yesterday we reported first quarter earnings of $195 million compared to $257 million for the same quarter last year. equates to $1 per nonvoting share this quarter and $1.31 per nonvoting share for the first quarter of last year. Nearly 60% of the decline came from the decrease in gains on the disposal of retired equipment. During the remainder of my prepared remarks, all of my comparisons are going to be for the first quarter of fiscal 25 versus the first quarter of fiscal 24. equipment rental revenue results. We had a $15 million increase. That's about one and a half percent. This is our first year over year increase in equipment rental revenue in eight quarters and is 35% higher than the first quarter of fiscal 2020, which was our last quarter before the pandemic. And I mentioned this because it puts our current first quarter results above where our historical trend would have had us absent the the positive business side effects of the pandemic. Transactions and revenue per transaction in both our in-town and one-way markets improved. The increase in transactions combined with the progress that we've made in rotating older equipment out of the fleet resulted in an increase in equipment utilization. July revenue results were close to even with last year's monthly result, and we've had a good start here in the first week of August. Capital expenditures for new rental equipment were $539 million. That's an $85 million increase. We've increased our fiscal 2025 full-year net CapEx projection by about $40 million to $1.9 billion. That's due to the addition of more units that became available from one of our manufacturers. On the other side of the equation, proceeds from the sales of retired equipment decreased by $49 million. to a total of $144 million. That's a combination of fewer sales of our smaller trucks and vans, along with a lower sales proceeds per unit that we received for each of those trucks. Switching gears to self-storage, we were up $17 million, which is about 8%. Average revenue per occupied foot continued to improve across the entire portfolio, up nearly 3%. And if you carve out the same store portfolio, we were up just over 4.5% per foot. Our occupied unit count at the end of June was up over 32,000 units compared to the same time last year. But as Joe alluded to, during the same time frame, we added nearly 64,000 new units. This differential then led to our average occupancy across the entire portfolio to decline about 280 basis points to 80%. If you split out the same store portfolio, we saw average occupancy come down by 120 basis points to 93.9%. And since June of last year, we grew our same store portfolio by 59 locations. During the quarter, we invested $402 million in real estate acquisitions along with self-storage and UBOX warehouse development costs. That was an $108 million increase. During the quarter, we added 17 new storage locations, along with expansion projects at several locations. The total square footage increase was just under 1.7 million new net runnable square feet. We currently have about 7,700,000 new square feet being developed across 158 active projects, and then another 9.2 million square feet of development pending behind that. Our UBOX revenue results are included in other revenue in our 10Q filings. This line item increased $9 million, of which UBOX was a major contributor. Earnings before interest, taxes, and depreciation at our moving and storage segment adjusted to remove interest income from the prior year, and I'll touch on that a little bit more here in a second, increased by $16.5 million. A few comments on operating expenses at the moving and storage segment. They increased $21.5 million, leaving our operating margin before depreciation and lease expense flat with the first quarter of 24. On a positive note, we saw fleet repair and maintenance decreased a little over $20 million, a pace that we're unlikely to maintain throughout the rest of this year. On the other side, personnel costs were up a little over $11 million. Liability costs associated with the fleet were up $13 million, and then property taxes and building maintenance were up a combined $10 million. We continue to place a premium on having access to cash. At the end of June, at our moving and storage segment, our cash, along with unused availability from existing facilities, totaled $1,567,000,000. We saw interest during the quarter increase $6.6 million, while interest income on our cash and short-term investments decreased just under $9 million due to less cash being held on the balance sheet. For this year, there's going to be a bit of a presentation difference on the moving and storage interest income. It's going to take a little bit of extra effort to make the appropriate comparison. If you have any questions about that, please feel free to reach out to Sebastian or myself to walk you through it. On our investor relations website, investors.uhaul.com, we posted some supplemental materials this quarter that are in addition to our press release and our 10-Q filing. You can click on these on the home page and also on the lower right-hand corner of that page. With that, I would like to hand the call back to Angela, our operator, to begin the question and answer portion of the call.
spk01: At this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 to ask a question. We will pause for a moment to allow questions to queue. We'll take our first question from Keegan Carl with Wolf Research. Please go ahead.
spk00: Yeah, thanks for the time, guys. Maybe to kick things off, Joe mentioned on the release that it feels like the customer is winning the eventual race. I guess I'm just curious, is this comment more broadly just surrounding pricing power and potential erosion around that, or is there something else here that was meant by that comment?
spk08: The customer is, of course, who's going to win. I know that we view this very much as a consumer product. Some other of our other people in the marketplace view this as a real estate product. We view it as a consumer product, and we think very much that if someone can win the support of the consumer, that they will do that by pleasing the consumer, and that's our intent, and we believe that will give us some modest amount of greater ability to weather hard times. It depends on who you talk to, but a bunch of people think it's hard times in the storage business. I'm not totally of that mind, but it's much more difficult to get new customers than it was two or three years ago.
spk03: Keegan, this is Jason. If I could also just add to that. I mentioned the revenue per occupied foot on storage is still improving, and on the fleet, we did still see some increased revenue per mile. So we're you haven't yet seen any sort of decrease in pricing power there.
spk00: Got it. That's really helpful. I guess one for you, Jason, I know you mentioned a little bit about July and August performance, but I guess big picture I'm trying to get a better feel for, are you starting to see any sequential acceleration maybe from June to July and then July and August across your various business segments?
spk03: I would say that Mike SanClements, Storage has been fairly steady performer my expectation going into the year was that we would start to see revenue proc if I flip kind of trail off that that's remained. Mike SanClements, Pre resilient on the equipment rental business i'm not ready to declare some sort of. Mike SanClements, Victory on that front it's been a little bit in fits and spurts so far this year, fortunately we've had more positive than we've had negative, but we built up a little momentum going into July and then July. Justin Cappos, flattened out, which was a little bit disappointing and now the first week of August, it seems to be picking up so. Justin Cappos, we're certainly I wouldn't I wouldn't say that all the momentum is there yet.
spk00: Justin Cappos, got it I guess just big picture, it feels like you know we've kind of worked through the. Justin Cappos, peak housing season and it wasn't what people are necessarily anticipating so I guess i'm just wondering on the moving business that anything stand out regarding the volume or cadence of in town versus one way moves.
spk08: This is Joe. Well, we saw increases in both. My experience is that the ratio of them is determined somewhat by the consumer's optimism. And we saw a little bit of growth in the one way, which is a little bit more optimistic consumer. Now, is that a trend? I wish I knew the answer to that. We're definitely... digging deep and having to, you know, go to every corner of the market to try to find business. But, of course, that's what we're supposed to do anyway.
spk00: Got it. I guess just shifting gears to storage, typically the quarter from April to June is a strong quarter for storage. Obviously, the housing markets continue to have an impact. I guess what I'm just curious is maybe on street rates, given that's what the new customer's been getting, you know, what happened in the quarter for you guys? Have you been adjusting it at all, you know, based on what the competition's doing? And are you seeing any positive trends versus last year in the same period?
spk03: I'll start off by just speaking to the actual numbers. We're still running a positive variance between, well, kind of on both of the statistics that are part of that question. asking rents this year versus last year are up for us and the spread of what the incoming rate is versus the customer outgoing is also still positive for us so i haven't seen those have been running on average for us for really the last year or so kind of plus two plus three percent in that range so this is joe i would add that what's
spk08: In my judgment, what's been happening is we're catering to the customers to justify our rates and our competitors are not. Again, this goes back, I think, to a fundamental view of the business. I view this as a consumer product and if I can figure out what they want, there's still a reservoir of additional customers who are willing to pay a fair price. There's been a lot of discounting in the industry that's way below cost of doing business. You know, I don't know if Jason wants to weigh in on that, but they've been pricing way, way below the cost of doing business. And of course that usually doesn't work out over the long time.
spk00: And then last one for me, obviously there's a lot of concerns around the broader consumer, particularly in storage. I guess I'm just curious, one, are you seeing any change in your average length of stay? Two, how are customers reacting to the existing customer rate increase you're sending out? And then just generally, are you seeing the signs of softness in the storage customer that some of your storage competitors have called out?
spk08: Well, there's been softness for two years, just about, certainly 18 months. And we have our way of responding to that, and our competitors have their way. And our way has been to try to increase customer service so that the customer can justify spending their hard-earned dollars at the U-Haul facility. They haven't been doing a whole bunch of additional discounting or hidden fees, any of this sort of thing. And I think that long-term, that's going to benefit us, but the jury's still out on that. We just have a fundamentally different way of looking at the customer.
spk00: And just for Jason, just any commentary on the length of stay? Are you seeing any difference in trends there?
spk03: Sure. I looked at this for this last quarter. We saw maybe a little bit of like a 1% pickup in greater than two years, a couple point increase in the one to three month range. And then most of that came out of kind of the nine to 12, or I'm sorry, like one to two year range. So a little bit movement to the outside. But again, we're talking small percentage points. The other push point that you might look at in the strength of the consumer is what you would call our delinquency rate. And that was up maybe 20 basis points compared to the same time last year, but still within kind of the range that we would deem acceptable.
spk00: Great. Super helpful. Thanks for the time, guys.
spk03: You're welcome.
spk01: Our next question comes from Steven Ralston with SACS. Please go ahead.
spk07: Good morning. I'm going to start with, and it might sound like a gratuitous comment, but that's the first thing that comes to mind. In the last conference call, Joe mentioned that he expected the top line to improve modestly through the calendar of 2024. And I was skeptical. but so far it's coming to fruition. As you mentioned, the depreciation effect is coming into play with these strong capital X, CapEx program. This non-cash expense is basically disguising U-Haul's earnings power. I just happened to rent a van this week and I was impressed. It was a relatively new van, under 20,000 miles, And it gave me a thought that timeline.
spk03: I'm sorry, Steven, we lost you for a second there. You kind of dropped out when I said it gave you a thought.
spk07: Yes, it gave me a thought that the, I'm thinking about the CapEx timeline. that it might have been easier to buy smaller vehicles like vans as opposed to trucks and larger trucks for the self-moving rental market. If that would affect depreciation in that if you were buying more expensive, larger trucks at the tail end of the CapEx timeline, we might see depreciation even increase more. Could you speak to that?
spk03: Steven, this is Jason. I'll start. It's not just the larger trucks that are costing more. It's also the trucks that you're seeing are also costing more. And the vast majority of the line item gain on disposal of equipment or the insert that's part of depreciation is the majority of that is the cargo vans and the pickups. And that's the area where we're seeing... sales proceeds year over year decrease. And now we're starting to begin to sell the units that we've been purchasing in the last 12 to 18 months that were costing us more, which is further shrinking that. And then with that realization in place, we've then on new units that have been purchased, we've been increasing the depreciation on that too. So that we're not in a lost position when we go to sell them. So that
spk07: that's putting the upward pressure on depreciation right now and and we will continue to see that in increase at least at the rate that you're seeing right now all right yeah all right um i don't know if my question was answered i'm see this is this is about larger trucks with larger price tags with uh maybe the The supply is not adequate yet for U-Haul to purchase those trucks, and we might see a bolus of large trucks being bought and then all of a sudden seeing the depreciation come through.
spk08: Yes, I think that what you're saying is that the mix of vehicles as they come in impacts that depreciation line, absolutely. Right now, it's being most negatively impacted by the pickups and vans. But there's a little bubble coming at us on the big truck, assuming we can get the quantity. So far, we've been buying almost based on allocation. In other words, we haven't had the flexibility. If we could have put another thousand trucks in, I would have been an advocate for it. Of course, we'd run it through a financial analysis. And had we bought another thousand big trucks, we'd see a bump in depreciation. I don't think there's any doubt. I don't think you're going to see... I don't think it's going to be so visible to all of you. I don't know, Jason.
spk03: No, I get your question now, Stephen, and you're right. I didn't quite answer it. We are incrementally increasing as the larger trucks become available, buying them. We've made a lot of progress on the backlog, so I don't see another situation like we had immediately coming out of COVID. the rotation program is night and day from three years ago. So a lot of progress has been made there. The trucks, the larger trucks that are dropping out are the trucks that are, you know, 15 year plus trucks that have a very low depreciation attached to them. So as those come off, not much depreciation falls off, but then the new trucks come on, there is a big depreciation number. So we're going to see more of that this year. I'm not sure if it, your definition will bulge, but it is going to keep increasing, but we're not falling behind on rotation of big trucks right now.
spk07: Thank you. That answers my question. Getting a little granular here with the other interest income being moved around, but on the line that now you have separated to see the interest being earned on marketable securities. It was lower than my expectations. You mentioned that you kept some cash on the balance sheet. Could you add some color of why you did that?
spk03: It's just cash waiting for us to invest. So we borrowed the money a few years ago. We've been steadily working that down. I think our cash balances at moving and storage compared to a year ago are off maybe a billion three, I think. So we've been working that balance down. Here in this next quarter, we're probably going to do another large borrowing and build that back up again, because you can see we're, last 12 months, I think our run rate on real estate investment has run a little over a billion three for 12 months. So I'm trying to keep enough cash available to maintain that pace here for at least the next couple of years.
spk07: It surprised me up over 7%. And I think there were some comments in previous conference calls that it tends to be in line with the self-moving equipment business, which there was a disconnect this time. It was much stronger. Any reason for that?
spk03: I'm sorry, you dropped out on the first part of that question. I picked it up at 7%. I didn't hear what was before that.
spk07: Okay. From what I understand, UBOX is supposed to be generally in line with the self-moving equipment business. Maybe they'll be off by a few hundred basis points, but generally they'll grow about the same percentage. And that's what I got from previous conference calls. But this time, UBOX was much stronger, what, five, six times stronger than the equipment business. Is there a reason for that disconnect?
spk03: Sure. I'll start with that. Well, it's a smaller business that's in growth mode. So if you had the impression that it was growing the same percentage as you moved before, then I I apologize for you getting that impression. It's been growing much faster. What I have said is that our estimated margin on that business, which is, you know, we don't do separate P&Ls for it, so it's a little bit of a guess, but the operating margin is relatively close to what you're seeing for the overall moving and storage. Those move pretty close together, but the growth on that business has been for the last several years on a percentage basis exceeding even storage growth in most cases.
spk07: All right. Thank you for answering my questions.
spk01: We'll go next to David Silver with CL King. Please go ahead.
spk04: Yeah, thank you. I had a couple of questions. I mean, first, and I apologize if I'm making you repeat yourself, but I just wanted to zero in on the 192,000 total of rental trucks at the end of your first quarter. And, you know, I guess that's a pickup from where we were in March. And it's exactly the same, I guess, as where we were 15 months ago. So basically the declines in your overall you know rental truck portfolio uh that took place over 12 months you made up in the the first uh quarter here now i know it's not probably not apples to apples but but was that your intention and you know i thought if i recall correctly jason i think you said the plan was to kind of rebuild the uh rental fleet over you know over fiscal 25. So I don't know. I'm just looking at the, you know, what I think is a meaningful bump up in your fleet in the first quarter relative to what I was expecting for the full year. So just if you could comment on that, I'd appreciate it. Thank you.
spk03: Sure. From a numbers perspective, a couple thousand units was the smaller pickups and cargo vans, which we're moving out, you know, every 12 to 24 months. So What happened in March was we had a bunch of them pulled out and prepped for sale, and then the deliveries came. There was a little bit of a dislocation there for a moment. On the box trucks, they're probably up 1,000 units from where they were last quarter. We've been pulling units from that fleet for sale, and now we just need sales to kind of get caught up. There's only so many of those units that you can pull out at one time. So I think towards the, my expectation would be the fleet should be relatively flat year over year.
spk04: Okay, thanks for that. And then I had a question, I guess, on the storage side. But, you know, you are, in your CapEx budget, you know, you're allocating quite a bit for, to build out your storage capacity. And then I did note this quarter, I think 0.4 million square feet of additional space were acquired, you know, inorganically or by acquisition. So when U-Haul thinks about, you know, your plans for adding storage, is it the case where, you know, you trade off between organic and inorganic growth, you know, buy versus build, I guess, or is it the case where you have kind of a a organic growth target you know reflected in your capex budget and the amount of inorganic uh storage space that you add is is really kind of a separate you know separate somewhat unrelated issue maybe for opportunistic reasons or maybe from i don't know deals that take a long time to uh to be completed but just to comment on how inorganic and organic elements of your
spk08: growth and storage kind of play together thank you sure this is joe when we're doing a an entire new ground up that's a two to four year process depending on where you are so there's a big tail on that so to kind of it follows a trend line pretty much it doesn't jump around a lot the Buying existing storage, like you said, it kind of comes and goes. We don't have a target that we want to get X amount of it. I think it's very much opportunistic. And most of those deals close pretty quick. Some of those things take a year, but most of them are 90 or 120 day from first look to running the site. I think you could see more volatility in that, if that answers your question.
spk04: Okay. No, that's helpful. And then maybe, Joe, just to stick with you, you know, I was reading in the press release the comment that you said competitors continue to mimic our customer service, and we have to implement more ways, you know, to satisfy the customer. Could you just call out, if you wouldn't mind, can you call out one or two of the mimicry examples of the mimicry you cited? And then what are the last one or two or three differentiating moves that you've made to kind of counter the moves by your competition? Thank you.
spk08: Sure. A very physically obvious one you'll see is All our competitors now put in windows with doors visible. That of course was our innovation and the competitors. Almost even individual investors have figured that out now. And they just mimic us. Individual door alarms. We've been the strongest in the business of that for. At least 10 years and that gap is closing. And there's. some new technologies out there too that we have chosen not yet to implement and so I'm not quite sure where the individual door alarms as far as customer service is really headed I think we've done a tremendous amount on unattended move in or move out so you can call it whatever you want to call it but giving the customer the ability to self move in or self move out I think that I credit very much Storage Express for really bringing this into focus for me and giving that to me. And Storage Express eventually was acquired by Extra Space, so they, of course, are now implementing that across their portfolio. I don't have privy to their exact deal, but I can kind of see what they're doing. Those are some easy ones. I don't want to tell you what. I think I've got to edge on it because I just don't want to aggravate my own situation.
spk04: No problem. No, I appreciate that. And then maybe just this will be my last one. But, you know, when you break out your revenues by, I guess, product line, the self-moving equipment revenue, rental revenues are up, you know, year over year as you called out for the first time in a number of quarters. When I look at those numbers and I think of the overall market, I think you indicated both in-town and one-way were up. Should I think that U-Haul is gaining share in a static or slightly declining market, or is this the case where the market is growing and you're sharing in the growth on both sides? And yeah, I'll just take it one step further. But if you are gaining share, I mean, I would have to guess that it would have to be on the one-way side since, you know, just given your positioning on the one-way moving side of things. So if you could just comment on maybe the relationship between the change in your self-moving equipment rental revenues year over year and relative to the overall market share gains, static, et cetera. Thank you.
spk08: There are no accurate market share numbers. That's the first thing. Of course, we have opinions, but there is no market share information. Curiously, what happens is you see more movement between people who rent equipment and people who we'll say, use owned and borrowed equipment. And there's a tremendous amount of people who basically move from the backseat of their car or a truck they borrowed from work or, God forbid, a horse trailer. I see it every week. And we, I think our gains over the last 12 months have been a better placement of our product relative to the consumer. And Jason's auxiliary materials that he posted up on the website. He talks about what percent of the population or how many miles from. And he's speaking locations. Then it becomes individual pieces of equipment. So it gets very granular. But I think that we've made some progress. There's no question in my mind. We've made progress there. And so we probably didn't take it from anybody other than owned and borrowed equipment, in other words, I'm not so sure that anybody who was a name brand saw any decline, but we expanded our share of the total market, but not maybe at the expense of another competitor, maybe at the expense of owned and borrowed equipment.
spk04: Very good. I appreciate all the color. Thank you.
spk01: Our next question comes from Jamie Weiland with Weiland Management.
spk02: Hi, fellas. I applaud that you look long-term and adding the self-storage units, which is going to pay off royally over time. But as you mentioned, in the short term, it takes, let's say, on average, a three-year period for those things not to be a hindrance to the income statement. I wonder if you could quantify how much of a hindrance It is from those units that have not yet matured. And it would be great to see that on a quarterly basis so we could see if they're declining. I mean, I can't imagine that you're going to add much, much greater numbers annually than you have been. But I would love to see what that number is as it impacts the income statement.
spk08: Well, this is Joe. I feel a little bit this is like the insurance company wants to have a device to notice if I'm speeding or not. I appreciate you're more on my side than the insurance company is. It's not, we don't have that calculation or make that calculation unless Jason does it and doesn't tell me. Okay, so I'm very aware of it. I've been trying to reposition the last, I've been effective at repositioning us over the last 24 to 30 months to get into some sub markets that I think I can reliably fill additional rooms in. Adding a tremendous more rooms in downtown LA, I'm not sure is really in my best interest or the company's best interest. While we're adding a little bit, that's not really the thrust. We're looking for other markets that we think are going to allow us a little bit better cost advantage and a little bit, I guess, a cost advantage. Where we've really, we're, and you can't see it, and I don't know, I haven't asked Jason this question, if he wants to. I think our newest projects are starting to rent up at a better rate than we were 24 months ago, or 18, and that Dave Kuntz, That that trend i'm hoping will continue that way we're doing this, I think it's going to continue, and so, and I think that might be caught my slowness. Dave Kuntz, is more in the difference which Jason I don't remember the number, but we're down like one and a half percent in same store in occupancy that's a lot of rooms, at the end of the day that's like. 900 locations, all being down 1%. And so there's a bigger drag there. There's an equal drag there to the drag of new construction in my judgment, although I do not have a mathematical equation, Jamie, on that. But I think my opportunity is there as much as it is in the speed at which I put in new units. That's kind of
spk02: Would you still say it takes about three years for new units to start to be contributing?
spk08: Yeah, I think that's Jason.
spk03: Yeah, it's still trending that way. It increased during COVID. We picked up 10 to 15 points of occupancy per year during COVID. We're now kind of back to normal. The projects that launched the last 12 months, the first three quarters of those projects, occupancy was lagging from our historical average, and then it seemed to pick up in the last quarter, which would point to some of it is just management on that, and we're kind of back to where we would expect to be at the end of 12 months. On your overall question, my sense of it is that the new projects are not necessarily a year-over-year drag on the operating margin, but certainly it's than a drag on the return on equity and assets. You're certainly seeing that defect there.
spk02: Okay. Thank you, fellas. Appreciate it.
spk01: We'll go next to Steven Farrell with Oppenheimer. Please go ahead.
spk05: Morning. Operating expenses were up about 35 million year over year. How much of that is from growing the business, having more locations, personnel, compared to increases in operating expenses of the existing business?
spk03: It's a relatively small part of that. I don't have that number off the tip of my tongue right now. That's not a significant part of it.
spk05: The new locations are not significant?
spk03: No, I would say that I'll try to find the number here before the call is out in order to verify that. But it wasn't enough to put much downward pressure on the margin. I'd say that.
spk08: OK. And just to clarify. Let me help you on this. Everything's going up. Utilities are up. They're getting whacked with property taxes. Wages are up, and we're not up enough. We need to be up more in wages. It's a very competitive marketplace for quality people. So there's a lot of upward pressure on those expense lines. And of course, the challenge is to try to figure out how to configure things so the customer is willing to accept those increased expenses. And as I pointed out earlier, the increased expense from the original equipment manufacturers on trucks Customers, they're not seeing that as a big benefit to them. In other words, costs went up, but nothing happened that was of no value increased to the customer. So we have plenty of, you know, we have something like 33,000 employees. We got people all over the country, you know, doing work work. And it's been a battle, and it's a continuing battle to try to make them more productive. because they simply must be paid more because they're in this pinch. They're in a vice. And so we have to try to do that. And that goes to, some of it is, you know, streamlining operations. And I'm very hard focused on that, but it's, you know, we've squeezed a lot of the waste out of the deal so far. So it's not just You know, there's no big breakthrough going to come around the corner as far as I can see on that, although we're pushing on all fronts on that to try to do it. I was in a Wendy's the other day, and they would not take my order except at the kiosk. And, of course, I didn't want a bunch of the junk on the burger, and I didn't want the meal, and I couldn't figure the damn kiosk out. So finally their person had to come around from the back and come up to the kiosk and do it for me. not at least average intelligence on these fast food deals, but there they were trying to make it work better. In fact, they went backwards and spent a ton of dough to go backwards. So I think we're not unique in that. I think you're seeing that all over people who have businesses where actual human work is being done and how can you – How can you optimize that situation or get the more productive locations? We're in that squeeze, and it's going to continue for some time. I just think that's a fact. And to the extent that you need assurance that we get that, we do get it. But there's not some magic thing around the corner, a truck that cleans itself or something of that nature, or storage rooms that don't have to be or trucks that don't have to be maintenance. There's no, we're going to be changing oil and changing tires at the speed of light, you know, going on into the future. And that just costs more money today.
spk03: Steven, this is Jason. I just checked. And locations that we had this first quarter that we didn't have first quarter of last year accounted for a little more than $2 million of additional operating expense, if that gives you a flavor.
spk05: That does. Thank you. And just to clarify the comments on your fleet size, you said it would be flat for the rest of the year. Is that from the June 30 number or March?
spk03: It'll probably be somewhere in between there. And every time I make a projection or prognostication on fleet, something changes around here. I'm usually within a couple thousand trucks of where we're right. So we could be plus 2,000 over where we were at March or below that.
spk05: And on the last conference call, you talked about potentially reducing the fleet size by about 3,000 or 4,000 trucks, and that would put it kind of significantly lower from where we are now. Is that something that is still in the works or could happen?
spk08: This is Joe. We did that as to part of our fleet. When you look at it by a model basis, we did that. And then we had the opportunity to purchase. A few more trucks became available. As I have indicated before, we've basically been on allocation on other trucks. And the market is softening just a tiny bit. So the OEs came back with some, quote, more capacity, OK? Well, it was the motorhome guys took a tank with the tank. And so they use a very similar truck to what we do. So they were able to change their production line to make U-Haul trucks instead of motorhome chassis. And so we got them. So there was a little opportunism there. And we're going to have that persist at least through December, I think, that we're going to get just a wee bit more than we had planned. Ordinarily, I wouldn't say ordinarily, but in past decades, we could tell you 10 months from now what we're going to produce damn near to the day. And the automakers had their supply lines. Basically, they triggered them to the day. It's so confused now at any given point in time. There's 20 or 30 entire missing trucks between us and the OE. I mean, they're just, God knows where the trucks are. And that supply chain is incredibly complex. And largely beyond our control. And so not only does the manufacturer vary the week they produce the trucks, which before they were like a railroad train. They could tell you what they were going to build in September to the day and be highly accurate. They no longer have that tight of a supply chain. And I don't know all their problems. I'm sure they're working very hard. But that impacts us when you look at the total fleet. So yes, we did drop probably 4,000 trucks on the small end of the fleet. And then we've picked up a few thousand trucks on the big end of the fleet. And the other one you have to look at, because what varies the fleet more than anything else is the rate at which you sell. So we have a bunch of starts and fits in bringing new equipment in. And then, of course, we think we're planning when we're going to sell it, but we don't always sell as well as we had planned. And so there's not a, you know, a four alarm fire going, but there's some resistance in the resale market right now. And I think it's because the consumer is pushing on the new truck pricing. And I think that's common knowledge. Wall Street Journal reports that. And so that reflects itself. Of course, it kind of trickles down through used truck pricing and demand. Again, in the middle of COVID, hell, we said we wanted to sell the truck, but we didn't have the line of people to buy it. Well, that's not the case today. Now we're still selling the trucks, and we're keeping more or less on program, but not as tight as we would like it to be.
spk05: And you touched on a potential capital raise during the quarter. How big would that be, and what's sort of your optimal level for cash just to operate the business going forward?
spk03: Sure. So it would be in the form of a private placement, $500 million. Our optimal level of cash is, you know – It kind of changes. Our floor historically has been I've been allowed to keep enough cash to cover a year of debt maturities, excluding the fleet revolvers. But we're well above that now. But I mentioned it earlier in the call. In the last year, I think we've deployed our net cash balances have decreased over $1.3 billion. So I'm just trying to prep that because we still have a couple billion dollars of development on the balance sheet that we need to finish. So we're certainly higher than what we need to just run the business from day to day. But to maintain the growth rate, I'm having to be a little bit heavy on cash.
spk05: That's all. Thank you very much.
spk01: This does conclude today's question and answer period. I will now turn the program back over to management for any additional or closing remarks.
spk06: Well, thanks, everyone, for participating today. As a reminder, one week from today on Thursday, August 15th at 11 a.m. Pacific, 2 p.m. Eastern, we'll host our 18th annual Virtual Analyst and Investor Day. Participants can sign in at investors.uhaul.com. Questions for the Q&A portion can be sent prior to the meeting to ir.uhall.com or submitted live during the event. Look forward to speaking with you next week. Thank you.
spk01: This does conclude today's program. Thank you for your participation. You may disconnect at any time.
Disclaimer