Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Amerco  (NASDAQ:UHAL)
Q3 2020 Earnings Call
Feb. 06, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to AMERCO Third Quarter Fiscal 2020 Investor call and Webcast. [Operator Instructions]. I'd now like to turn the conference over to Mr. Sebastien Reyes. Please go ahead.

Sebastien Reyes -- Director of Investor Relations

Good morning, and thank you for joining us today. Welcome to the AMERCO Third Quarter Fiscal 2020 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 a discussion of the risks and uncertainties that may affect AMERCO's business and future operating results, please refer to Form 10-Q for the quarter ended December 31, 2019, which is on file with the U.S. Securities and Exchange Commission. I will now turn the call over to Joe Shoen, Chairman of AMERCO.

Edward Joseph Shoen -- Chairman of the Board Directors, President & Chief Executive Officer

Good morning, everybody. We continued to build our business in quarter 3. The basic self-move business remains solid. We were able to continue to grow units rented in our self-storage business. The expenses, however, have bumped up. Our spend on some some building maintenance and personnel are higher than absolutely necessary. We are tightening up on these as they have outpaced revenue. As the press release indicated, we saw a significant decline in rentals with last mile delivery services,over the Christmas rush. Amazon pleaded up with more dedicated truck. We expected this, but we were one cycle off on the timing of it. We redeployed our equipment and increased consumer transaction, but still fell far short of last year's revenue. This last mile business has been tough for us to make a profit on.

We implemented more stringent customer qualifications this year. And because of that, some potential customer Went to other rental company. u haul is not in the business of managing dedicated lead like for instance brighter systems. However I plan to continue to earn last mile gear up business as opposed to dedicatedly. This gear up business is more a part of people's core. I'm looking forward to continued strong ran up in the Self Storage business or and hopefully the 120 21 new storage product from u haul and many others that continues to flood into the market and will ultimately cause oversupply in some localized market. Our when that occurs I expect our team to be able to manage through it. Business has been and remains very competitive. It is you halls plan to be the customers best choice profits for que theer Youth we are lousy. And some of that will continue to pour over into q4. We have a solid base and there is room to grow in many market. We remain focused on earning your continued support. Our EBITDA was down about $30 million in Q3. The rest of that money has been invested in our future, and what we will continue to do so.

With that, I'll turn it over to Jason.

Jason Allen Berg -- Chief Financial Officer

Thanks, Joe. Throughout my comments, my comparisons are going to be for the third quarter of this year compared to the third quarter of fiscal 2019, unless otherwise noted. So yesterday, we reported third quarter earnings of $1.58 a share as compared to $4.01 a share. I'll start off with equipment rental revenues, they decreased nearly 1% or about $5 million. During the third quarter of fiscal 2020, as Joe mentioned, we experienced decreased corporate account activity or what many might call last mile business. Excluding the decline in this type of business, we saw continued growth in all other equipment rentals, including our one-way and in-town market. While it's unlikely that any offset of this business is going to be dollar for dollar, I would expect to see some positive effect on trailing repair and maintenance costs and perhaps on proceeds from the sale of equipment as a result of the decline in these last mile transactions. Compared to last year at this time, we have increased the number of trucks and trailers in the fleet, and we have more company locations.

Capital expenditures on new rental trucks and trailers were $1,161,000,000 for the first nine months of fiscal 2020 compared with $882 million for the same nine-month period last year, while proceeds from the sale of retired equipment also increased to $591 million, up from $559 million last year. Storage revenues were up $13 million, that's just over 14%. Looking at our occupied room count as of December 31, we had an increase of 45,000 units occupied compared with the same time last year. That's a 45% increase in the pace of filling rooms year-over-year. Since last December, we've added 122 new locations with storage products. From an occupancy standpoint, we continue to add new units faster than we're filling them, although that spread is narrowing. So for example, this year, we added available rooms at a rate of about 18%, and we've increased occupied rooms at a rate of about 15%, a 2% difference. Over the last two years, that spread has been between 4% and 6.5%. So it is trying to come in. And that's not from us decreasing the rate of rooms added, that's from us increasing the rate of filling rooms.

Our all-in average monthly occupancy throughout the third quarter of fiscal 2020 was 67%. Again, this quarter, we took a look at our facilities that had occupancy over 80%. As of December 31 of this year, we had 705 locations or close to 60% of all of our owned storage locations that had occupancy over 80%. Compared to last year at this time, that's an increase of 48 locations. And the average occupancy at these locations was 90%, up just slightly from last year. Our real estate-related capex for the first nine months of this year was $600 million, that's down from $639 million last year at this time. And over the last 12 months, we've added 6,142,000 net rentable square feet to the storage portfolio, about 1.2 million of that came online here during the third quarter. Operating earnings at the moving storage segment decreased $58 million to $62 million for the quarter, and I'd like to touch on a few of the more significant expense items. Depreciation expense associated with the fleet increased by nearly $17 million as we've continued to add new equipment to the fleet.

We are nearing the normalization of the rotation program for our 26 foot truck, it should lead to a slowing in acquisition, which will then result in a stabilization of the fleet depreciation for this model in the next 12 months or so. depreciation on all other assets primarily storage location assets increased by $7 million. The increase in this category was a function of our self storage developed. We begin to recognize the economic depreciation from these projects immediately while the revenue begins to steadily off that them over time. repair costs associated with the rental fleet increased a $14 million during the quarter. With the increase in the number of trucks in the fleet preventative maintenance costs have gone up in relation. Additionally, during the quarter, we saw a higher count of trucks sold and being pulled out of the fleet for sale as compared to the third quarter of last year, resulting in higher repair costs as we prepare them for auction compared to the third quarter last year. Outside of depreciation and maintenance personnel costs representative the largest single increase in operating expenses. Other costs including property taxes, insurance expense, utility cost or three the larger other item that experienced increases.

These 4 types of expenses, including personnel, in aggregate, accounted for about $26 million of the operating cost increase during the quarter. In December, we declared a $0.50 per share cash dividend, that was paid in January. And at the end of December, cash and availability from existing loan facilities at our moving and storage segment totaled $659 million.

With that, I'd like to hand the call back to our operator to begin the question-and-answer portion of the call.

Questions and Answers RETURN TO TOP.

Questions and Answers:

Operator

[Operator Instructions] First question comes from George Godfrey, CL King. Please go ahead.

George Godfrey -- CL King -- Analyst

Thank you. wo questions. The first one is, on the last mile, I understand the profitability has been challenging. And so I want to separate the profitability of that revenue and the revenue itself because if the revenue is going down on the loss of accounts then that's a less profitable business. I would have thought the margins would have gone higher. That's the first question.

Edward Joseph Shoen -- Chairman of the Board Directors, President & Chief Executive Officer

Okay. I'll take that. It probably did, but we still have the fixed cost for that fleet and the fixed cost is comparable. So what happened is we end up increasing our consumer transactions during the period, so let's say the average consumer transaction is $100 minus and the average last mile delivery transaction was about $1,000, that's a representative number. So what happened, we needed 10 to 1 to offset it, and we didn't get anything like that. So you're exactly right. If we had defleeted, if we -- which we would have seen that happen, so we have enough fleet to handle their business and the business.

Jason Allen Berg -- Chief Financial Officer

And George, this is Jason. One other point to that is, some of the costs aren't, from a time perspective, immediately on top of each other. The repair and maintenance cost and a lot of what the costs that come along with that business, you recognize later on in life of the trucks that they use. So when we have to fix them after they bring them back, so when we prepare them for sale, we end up recognizing some more of the cost associated with those transactions. So it's a little disjointed.

George Godfrey -- CL King -- Analyst

Understoor. And then my second question is, FedEX was pretty clear about not delivering a working with Amazon and Amazon themselves tried to push back on other third-party sellers from using them as well as they build out their own fleet of delivery services. Is there a concern that Amazon could take that fleet and star cutting into more of the traditional moving and rental equipment that you offer as well. Just wanted to see if you're thinking about Amazon becoming more of a -- not just losing them as a customer, but more of a competitor?

Edward Joseph Shoen -- Chairman of the Board Directors, President & Chief Executive Officer

Well, yes, I would, without trying to be too flip, if they did that, I'll be glad that I'm not an Amazon shareholder because that's -- they don't lose money in the right. These businesses are so different than the utilization side of equipment, where you have to have the equipment condition. So grossly different. But -- and you saw that with Ryder System because they're a very disciplined and successful company. They exited this business precisely for those reasons, not that they didn't have confidence. They got a lot of them. But you get in this consumer business, it's a different situation than managing a fleet. I'm sure Amazon will be very fully occupied trying to manage this dedicated fleet that they're bringing on it, it's considerable.

I don't have actual insight into their numbers. But I got some guess, it they brought on a considerable, and they will be pressing everybody's system to just keep the fleet operating.

George Godfrey -- CL King -- Analyst

Understood. Thank you for taking my question.

Operator

Next question comes from Ian Gilson, Zacks Investment Research. Please go ahead.

Ian Gilson -- Zacks Investment Research -- Analyst

And.As we look at the operating expense line as a percentage of the rental costs, it has gone up significantly in the fourth quarter. Now I understand and you have had quite the significant cost increases, but according to my calculation, and those are something like 4 percentage points of your rental income -- revenue rather sort of went in that operating expense line alone. To illustrate that for the fourth quarter, normally, historically, the third and the fourth quarter have been close to expenses -- operating expenses. What are we looking at for the current quarter? And how much -- going forward, how long are you going to take is to get back to a more normal ratio of expenses?

Jason Allen Berg -- Chief Financial Officer

Ian, this is Jason. I'll start off with this one. Your calculation is the same thing I'm seeing here as far as being up a little over 4% operating expenses as a percent of revenue. So in this quarter, I think the biggest flux wasn't necessarily a dramatic increase in expenses. It was the decline in equipment revenue, whereas it should have been more of an increase in equipment revenue. The biggest cost drivers are personnel costs for the quarter, and we still have to make a decision.

There's some piece of that, that is a variable. There's some portion of that, that is out in the field and is probably in line with revenues at this point. On the repair and maintenance cost, if you look at what we reported over the first 3 quarters, the majority of the fiscal year-to-date increase in repair and maintenance happened here in the third quarter. So it just so happened in the quarter that we were down in revenue was when we pulled a significant number of pickups and cargo vans and prepping them for sale, and we saw some increase in costs associated with that. We have the continued drag from property taxes, utility costs and building maintenance associated with the storage development. However, that has been lessening over time. It's still a bit of a drag, but it's better. I think the drag from those is about 2/3 of what it was during the third quarter of last year. So in my estimation, still the biggest driver of the decreased operating margin is still on the revenue line.

Edward Joseph Shoen -- Chairman of the Board Directors, President & Chief Executive Officer

Ian, Joe here. I'll jump in. I still stick by my comment, which is, we had some personnel and some facility maintenance expenses that were absolutely necessary, and those should be better under control. At the same time, entry-level wages are going up in this country with both legislatively and demand driven. But we're competitive. We have a lot of people that we'll call very operative, our entry-level positions. And so we have no -- that's not a surprise, and I have no excuses. We have to make those people more productive in a given hour in and order to be able to pay them more. Part of that's revenue driven, part of it's procedure driven.

We had personnel expenses that were, in my judgment, too strong at both our call center and with our IT personnel. Of course, you tend to throw money at both those things, too. They're very unsettling areas, but I think we overspent there a little bit and we should be able to dial that back without causing some unforeseen disturbance in the whole operation. But that'll take -- it'll be summer before that. There'll be a fair gap. You can make a correction. It takes a while to work it through.

Ian Gilson -- Zacks Investment Research -- Analyst

Okay. You mentioned in the second quarter call about the exodus from California, and primarily Los Angeles, I believe, and also San Francisco. Is that continuing with a truck shortage in that area? Or are we managing to redress that problem?

Edward Joseph Shoen -- Chairman of the Board Directors, President & Chief Executive Officer

It's a massive shortage, which, the other way to look at it is we need to rent more trucks in, but it's been a challenge for us to rent more trucks in. Those areas grow not from internal migration, they grow from external migration, so people from the Pacific to Mexico. And so when they arrive in that community, we get a 0 percentage of them bringing our trucks in. So that causes this imbalance. And we've done a variety of things to attempt to balance it out, but we're -- we don't have a balance on it. I think everybody is experiencing the same thing. There's not a magic elixir on that. We have none of our truck assembly plants in California for the -- that very reason in Los Angeles because you just -- you would like to add supply there, but you can't quite do that with the trucks in an amount that would relate to the flows.

So until something substantially changes in the political economic climate, I would expect those places are going to be short of one-way rental. And we can deal with that, Ian, as you know, with equipment that we use in the local area and return to the same store. And we have then to continue to try to fleet that up so that we have a strong enough revenue base to keep all of our stores active. The one-way or the outbound equipment is going to be short there for the foreseeable future.

Ian Gilson -- Zacks Investment Research -- Analyst

Okay. Finally, how does the U-Box program doing on a year-over-year basis? I noticed that the other revenue line basically was flat at $51 million is it?

Jason Allen Berg -- Chief Financial Officer

Ian, this is Jason. The U-Box program is revenue-wise still growing, probably at a slower pace than what we saw last year. But the freight costs in an environment where shipping costs have been increasing across the board, our team has done a great job of lowering our shipping cost in relation to what they were in previous years. So whereas revenue growth has slowed a bit. I would say the contribution to profit has nominally improved third quarter versus third quarter.

Edward Joseph Shoen -- Chairman of the Board Directors, President & Chief Executive Officer

Ian, this is Joe. We also ran U-Box promotion that was the first time we'd run it. And we think that it cost us more revenue than we had forecast the cost. And so we probably won't run that promotion again. So -- but transactions are continuing to be strong, and there's a strong consumer -- among certain consumers is a strong preference for that sort of a move. So we're going to continue to drive on it. And I would expect you to see that line increase over the next 12 months.

Ian Gilson -- Zacks Investment Research -- Analyst

Okay, great. Thank you.

Operator

Our next question comes from Jamie Wilen from Wilen. Please go ahead.

Jamie Wilen -- Wilen -- Analyst

Yes, fellows. It seems like at U-Haul we continue to have a major capital allocation problem. I mean, we're -- as you've said, one of our prime objectives, if not our prime is fleet utilization is the key metric you look at. And that's been declining for a while now. We continue to really overspend for our fleet, I mean, we spent $1 billion in nine months. And when you add more trucks, it really hurts the utilization figure. We're looking at a company where if we were managing our company better if you have flat sales, you're able to understand that, reduce your costs and increase your profits. If you have increased sales, you get leverage on that.

But with flat sales and increasing truck fleet, it makes it very, very difficult for us to increase operating profits. I mean you look at the company, our pre-tax profits are lower than where they were five years ago. And that's just an incredible number. So -- and as I look at what we haven't done and forgetting about how much we're spending on self-storage, I really think the company has to add a new Chief Operating Officer. Someone from outside the company, outside the company's current culture who is more focused on generating cash, return on investment, reducing your expenses and increasing profitability for the company. I mean it is nice to have a gazillion trucks out there so that you'll never have one that's not -- that one cannot rent. But we've got to optimize profitability.

We've got to optimize our sales. And we have got to be able to generate cash as opposed to being a user of cash. And I'm hopeful that the Board looks through these transcripts and will really look at this closely to see whether we do need some outside input from an experienced person with a different perspective who can be aggressively cutting cost, raising cash and making U-Haul a much more productive and profitable company in the years ahead.

Analyst -- -- Analyst

Well, thank you for...

Jamie Wilen -- Wilen -- Analyst

Not a question, but I would love your commentary.

Edward Joseph Shoen -- Chairman of the Board Directors, President & Chief Executive Officer

Well, thanks, Jamie. I'll make sure that, that gets communicated through to the Board. The capital allocation to rental fleet is a little bit torture. We have essentially 2 fleet from your perspective, which would be our pickup and van fleet, which we can make year-to-year moves that are discernible. With our other truck fleet, you really end up -- every time you make a move, I don't see it -- it's really a seven- to 10-year move every time you make a move. So we want to be pretty deliberate there. But it's always better to have a sharp eye by toward that. So I appreciate your feedback.

Jamie Wilen -- Wilen -- Analyst

And second one on the self-storage area. I mean, there does come a point in time when you talk about the overcapacity in the industry and the building out there that we are indeed contributing to that it behooves us to let more of our stores mature and turn from -- into profit generators to create more for the future as opposed to spending so much so that our utilization rate goes down, we have an abundance of stores that are not yet profitable because it takes three to four years to get there. And if we could slow down on that curve of capital expenditures for new storage units significantly, we could see the profit of that business and the cash generation of that business improve at a rapid rate. Any plans to do that?

Jason Allen Berg -- Chief Financial Officer

Jamie, this is Jason. So there's a bit of lead time involved with that. So our number of active projects has ticked down just slightly. We're down maybe 10 active projects from where we were. It sounds like a small amount, but I think we're going to see that as the beginning of a trend. And when I say leading indicators, I look at acquisitions made over the last 12 months, which are largely conversion properties that will eventually turn into these projects. And we're down fairly significantly on trailing 12-month acquisitions. So our total spending that we call real estate-related was down like $38 million. It was down to $600 million for the nine months.

But there's two components to that. There's the construction component and the acquisition component. And the acquisition component is coming down much quicker, while the real -- while the construction piece is going up. So as an example, today, we have in escrow approximately 63 deals that we're looking at -- or I'm sorry, 27 deals for $63 million. That's down close to $200 million from the pipeline of deals in escrow last year at this time. So we aren't going to stop buying new properties, but we have certainly slowed the acquisition of new deals, which then in the next year or two, you will begin to see that translate into less square footage being released out into the system.

Jamie Wilen -- Wilen -- Analyst

Any ballpark for what capital expenditures are now in self-storage versus what they will be next year and the year beyond?

Jason Allen Berg -- Chief Financial Officer

If you look right now, I think our trailing 12-month capex, which is acquisition and construction, is somewhere around $950 million, $960 million. And I think we'll see that trend down closer to $800 million in the next 12 months or so, and then we'll see after that if it comes down further from there.

Jamie Wilen -- Wilen -- Analyst

Okay. Don't you all think those numbers for expansion of the truck fleet and expansion of self-storage seem a bit high for our company?

Edward Joseph Shoen -- Chairman of the Board Directors, President & Chief Executive Officer

Yes. I think they're a little bit high. Part of it is just trying to be -- make sure we're at the party, too. There's businesses, there's always a little risk to this, Jamie, and I appreciate that. The country is -- there's plenty of movement in the country in repositioning and I -- of course, I don't want to be left out of new markets. This land use to have quite a conundrum and when I see a good opportunity to get into a market that I know is going to continue to go up over the next 20 years, I'm a little bit -- I get a little bit worried that we would -- if we don't get into the market that this land use problem will become insurmountable. We have many, many communities where literally the land use is not available.

And I was trying to think of some communities but Oakland, California has had a moratorium on self-storage for maybe eight years. So if you weren't in, you're not getting in, whether I liked it or not, that's how they view it and they have that power. Well some of these markets, and it's a judgment, and we could be wrong, I'm not going to say we're going to be right every time, but some of these markets you just want to get into because they're going to close the door. And that is an accelerating trend, not a -- it's a long-term trend, but it's massively accelerated over the last three to five years, where this is a common thing that is discussed at these city councils, that should they just cease some development types, and they're very -- almost trendy and what they want and what they don't want. And there's quite a little trend now that they don't want self-storage. So with some of these, I'll pick up. We have a Dallas suburb and we got the property maybe eight months ago, and we beat their deadline by 30 days, and they've just shut all self-storage down, just shut it down.

Now we have yet to build the project because I don't want to spend the money, but we have got plans, we're in their site plan deal and we'll be able to drag that out for two years before we have to really go spend money. But if I don't get the properties and they're not kidding that they're just going to close the door on it, whether I like it or not, whether I think that's reasonable. That's -- I'm not really in charge of that process. And we're not the only people in the self-storage business, but you -- I'm confident if you talk to any of the REITs, they're encountering that same thing where communities are just shutting the door. And so that's kind of a -- I'm not at all unwilling to -- as this particular Texas property, we'll just buy it toward the inventory and drag it out because I don't want to spend the next $6 million or something, whatever is going to cost to build it out. But having us there and spending that money, I think, money well spent. We secured the use and the communities are growing massively, and there will be good business.

Jamie Wilen -- Wilen -- Analyst

I understand your view of looking 20 years out for what would be the best usage of capital today that might be worthy in 20 years. But again, fleet utilization of the truck fleet, capacity utilization of the self-storage facilities are metrics which you should be looking at on a quarterly basis to increase to make this company more profitable. Looking out 20 years is good, but I think you also have to look out 20 months and saying, how are we going to get from here to there. And maybe our view is too long term, and we need to be looking a little bit more shorter term for how to run this business more efficiently and more profitably.

Edward Joseph Shoen -- Chairman of the Board Directors, President & Chief Executive Officer

Well, I appreciate that. Thank you. Jason, trust me, he has a quarter-by-quarter analysis, and he spreadsheets them all out and we look at what started a plan and where is it going. And there's, I think, he's trying to do a good job of representing that position, and we try to give him real visibility on it. And I'll communicate your input to the Board also.

Jamie Wilen -- Wilen -- Analyst

Thank you.

Edward Joseph Shoen -- Chairman of the Board Directors, President & Chief Executive Officer

Thank you.

Operator

Our next question comes from Ted Wagenknecht, Applied Fundamental Research. Please go ahead.

Jason Allen Berg -- Chief Financial Officer

Ted are you there?

Edward Joseph Shoen -- Chairman of the Board Directors, President & Chief Executive Officer

Sorry you there with us.

Operator

Let's move to our next question from Craig Inman from Artisan Partners. please go ahead.

Jason Allen Berg -- Chief Financial Officer

Operator, at least, we're not hearing the question to come through.

Operator

[Operator Instructions] Our next question is from Craig Inman, Artisan Partners. please go ahead.

Jason Allen Berg -- Chief Financial Officer

We're somewhere -- still not hearing Craig.

Operator

This concludes our after question-and-answer session. I'd now like to turn the conference back over to management team for any closing remarks. Please go ahead.

Edward Joseph Shoen -- Chairman of the Board Directors, President & Chief Executive Officer

All right. This is Joe Shoen. I want to thank you again for participating in the call. We look forward to speaking to you in the future, and appreciate your continued support. Thank you.

Operator

[Operator Closing Remarks].

Duration: 38 minutes

Call participants:

Sebastien Reyes -- Director of Investor Relations

Edward Joseph Shoen -- Chairman of the Board Directors, President & Chief Executive Officer

Jason Allen Berg -- Chief Financial Officer

George Godfrey -- CL King -- Analyst

Ian Gilson -- Zacks Investment Research -- Analyst

Jamie Wilen -- Wilen -- Analyst

Analyst -- -- Analyst

More UHAL analysis

All earnings call transcripts

AlphaStreet Logo