Prepared remarks
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. 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 Sebastien Reyes. Please go ahead.
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 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 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 Shoen, Chairman of U-Haul Holding Company.
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 from 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 when 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.
Thanks, Joe. Yesterday, we reported first-quarter earnings of $195 million compared to $257 million for the same quarter last year. That 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 comparisons will be for the first quarter of fiscal '25 versus the first quarter of fiscal '24. Equipment rental revenue results showed a $15 million increase, which is about 1.5%. 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 mention this because it puts our current first-quarter results above where our historical trend would have positioned us absent 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 we have 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, an $85 million increase. We've increased our fiscal 2025 full-year net CapEx projection by about $40 million to a total of $90 million. 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 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%, and average revenue per occupied foot continued to improve across the entire portfolio, up nearly 3%. 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, and this differential 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%. 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 U-Box warehouse development costs. This represented a $108 million increase.
We added 17 new storage locations during the quarter along with expansion projects at several other locations. The total square footage increase was just under 1.7 million new net rentable square feet. We currently have about 7.7 million new square feet being developed across 158 active projects, as well as another 9.2 million square feet of development pending behind that. Our U-Box revenue results are included in other revenue in our 10-Q filings, and this line item increased by $9 million, of which U-Box was a major contributor. Earnings before interest, taxes, and depreciation in our Moving and Storage segment, adjusted to remove interest income from the prior year, increased by $16.5 million. A few comments on operating expenses at the Moving and Storage segment: they increased by $21.5 million, leaving our operating margin before depreciation and lease expense flat compared to the first quarter of '24.
On a positive note, we saw fleet repair and maintenance decrease a little over $20 million, a pace we are likely unable 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 billion. We saw interest during the quarter increase by $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 will take some extra effort to make the appropriate comparison.
If you have any questions about that, please feel free to reach out to Sebastien and me to walk you through it. On our Investor Relations website, we posted some supplemental materials this quarter that are in addition to our press release and our 10-Q filing. You can find 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.
Questions and answers
We'll take our first question from Keegan Carl with Wolfe Research. Please go ahead.
Yes, thanks for the time, guys. Maybe to kick things off, Joe mentioned on the release that it feels like the customer is winning the event for 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 there that was meant by that comment?
The customer is, of course, who's going to win. I know that we view this very much as a consumer product. If other people in the marketplace view this as a real estate product, we view it as a consumer product. And we think that if someone can win the support of the consumer, they will do that by pleasing the consumer. That's our intent, and we believe that will give us some modest amount of greater ability to weather some 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.
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 haven't yet seen any sort of decrease in pricing power there.
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?
I would say that storage has been a fairly steady performer. My expectation going into the year was that we would start to see revenue per occupied foot kind of trail off, and that has remained pretty resilient. On the equipment rental business, I'm not ready to declare some sort of 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 negative, but we built up a little momentum going into July and then July flattened out, which was a little disappointing. The first week of August, it seems to be picking up, so we're certainly not saying that all of the momentum is there yet.
Got it. I guess just big picture, it feels like we've kind of worked through the peak housing season, and it wasn't what people were necessarily anticipating. So I guess I'm just wondering on the moving business, did anything stand out regarding the volume or cadence of in-town versus one-way moves?
This is Joe. Well, we saw increases in both. My experience is that the ratio of them is determined somewhat by consumer optimism, and we saw a little bit of growth in the one-way moves, which indicates a more optimistic consumer. Now is that a trend? I wish I knew the answer to that. We're definitely digging deep and having to go to every corner of the market to try to find business, but of course, that's what we're supposed to do anyway.
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 market is continuing to have an impact. I'm just curious about street rates, given that's what the new customer has been getting. What happened in the quarter for you guys? Have you been adjusting it at all based on what the competition is doing, and are you seeing any positive trends versus last year in the same period?
I'll start off by just speaking to the actual numbers. We're still running a positive variance between asking rents this year versus last year, and the spread of what the incoming rate is versus the customer outgoing is also still positive for us. I haven't seen those have been running on average for us for really the last year or so kind of plus 3% in that range.
This is Joe. I would add that what I believe has been happening is that we are catering to the customers to justify our rates while our competitors are not. Again, this goes back to my fundamental view of the business. I view this as a consumer product. If I can figure out what they want, there is still a reservoir of additional customers willing to pay a fair price. There has been a lot of discounting in the industry below the cost of doing business, which typically doesn't work out over time.
And then last one for me. Obviously, there are a lot of concerns around the broader consumer, particularly in storage. One, are you seeing any change in your average length of stay? Two, how are customers reacting to the existing customer rate increases you're sending out? And then just generally, are you seeing signs of softness in the storage customer that some of your storage competitors have called out?
Well, there's been softness for two years, certainly 18 months, and we have our way of responding to that while our competitors have their way. 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. We haven't been doing a lot of additional discounting or hidden fees, and I believe that over the long term, that's going to benefit us, but the jury is still out on that. We just have a fundamentally different way of looking at the customer.
Sure. We've looked at this for this last quarter. We saw maybe a little bit of a 1% uptick in the greater than two years category and a couple-point increase in the one to three month range. Most of that came out of the one to two year range. So a little bit of movement to the outside, but again, we're talking small percentage points. The other push point that you might look at concerning consumer strength is what you would call our delinquency rate, which was up maybe 20 basis points compared to the same time last year but still within the range we deem acceptable.
Great. Super helpful. Thanks for the time, guys.
You're welcome.
Our next question comes from Steven Ralston with Zacks. Please go ahead.
Good morning. I'm going to start with it might sound like an intuitive 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. I was skeptical, but so far, it's coming to fruition. As you mentioned, the depreciation effect is coming into play with these strong CapEx programs. This noncash 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. It gave me a thought about the CapEx timeline.
I'm sorry, Steven, we lost you for a second there. You kind of dropped out on and said it gave you a thought?
Yes. So it gave me a thought that thinking about the CapEx timeline, it might have been easier to buy smaller vehicles like vans as opposed to trucks and larger trucks for the self-moving rental market. Have those purchases affected depreciation in that if you are 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?
Steven, this is Jason. I'll start. It's not just the larger trucks that are costing more. It's also the smaller trucks that you're seeing are also costing more. The vast majority of our line item gain on disposal of equipment or the insert that's part of depreciation is the majority of that is those cargo vans and 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. With that realization in place, on new units that have been purchased, we've been increasing the depreciation on that too so that we're not in a loss position when we go to sell them. This is putting upward pressure on depreciation right now. We will continue to see that increase at least at the rate that you're seeing right now.
All right. I don't know if my question was answered. I'm thinking about larger trucks, with larger price tags. Maybe the supply is not adequate yet or you had to purchase those trucks, and we might see a bulge of large trucks being bought and then all of a sudden seeing the depreciation come through.
Yes. What you're saying is 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 based on allocation. We haven't had the flexibility. If we could have put another 1,000 trucks in, I would have been an advocate for it. We'd run it through financial analysis. Had we bought another 1,000 big trucks, we would see a bump in depreciation. I don't think it's going to be so visible to all of you.
I get your question, Steven, and you're right. I didn't quite answer it. We are incrementally increasing as the larger trucks become available and buying them. We've made a lot of progress on the backlog. 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 are dropping out, and those are the trucks with very low depreciation attached to them. As those come off, not much depreciation falls off, and 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 your definition is a bulge, but it is going to keep increasing.
Thank you for answering my questions.
We'll go next to David Silver with CL King. Please go ahead.
Yes. Thank you. I had a couple of questions. First, and I apologize if I'm making you repeat yourself, but I just wanted to zero in on the total of rental trucks at the end of your first quarter. I guess that's a pickup from where we were in March, and it's exactly the same as where we were 15 months ago. So basically, the declines in your overall rental truck portfolio that took place over 12 months, you made up in the first quarter here. Now I know it's probably not apples-to-apples, but was that your intention? I thought you said the plan was to kind of rebuild the rental fleet over fiscal '25? So I'm just looking at 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. If you could comment on that, I'd appreciate it. Thank you.
Sure. From a numbers perspective, that couple thousand units was the smaller pickups and cargo vans, which we're moving out every 12 to 24 months. What happened in March was we had a bunch of them pulled out in prep for sale and then the deliveries came. There was a little bit of 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 catch up. There's only so many of those units that you can pull out at one time. So I think my expectation would be that the fleet should be relatively flat year-over-year.
Okay. Thanks for that. And then I had a question on the storage side. You are allocating quite a bit to build out your storage capacity. In your CapEx budget, I noted this quarter, 0.4 million square feet of additional space were acquired inorganically or by acquisition. When U-Haul thinks about your plans for adding storage, is it the case where you trade off between organic and inorganic growth, buy versus build, or do you have an organic growth target reflected in your CapEx budget? And the amount of inorganic storage space that you add is really kind of a separate issue for opportunistic reasons, or does it take a long time to be completed? Just a comment on how inorganic and organic elements of your growth in storage kind of play together? Thank you.
Sure. This is Joe. When we're doing a ground-up construction, that's a two to four-year process depending on where you are. So there's a big tail on that. It follows a trend line pretty much. It doesn't jump around a lot. Buying existing storage, like you said, comes and goes. We don't have a target that we want to get a certain amount. It's very much opportunistic, and most of those deals are closed quickly. Some of those take a year, and most of them are 90 or 120 days from first look to being operational. I think you could see more volatility on that.
No, that's helpful. And then maybe, Joe, just to stick with you, 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 to satisfy the customer. Could you just call out one or two examples of the mimicry you cited, and then what are the last one or two differentiating moves that you've made to counter the moves by your competition? Thank you.
Sure. One very obvious example you'll see is all our competitors now have put in windows with doors visible. That was our invention, and competitors have figured that out now. Individual door alarms have been a strong point for us for at least 10 years, and that gap is closing. Some new technologies out there are ones we have chosen not to implement yet. I think we have done a tremendous amount on unattended move-in or move-out, allowing customers to self-move in or out. I credit Storage Express for bringing this into focus for me, and they were eventually acquired by Extra Space. They are now implementing that across their portfolio.
No problem. I appreciate that. And then my last one. When you break out your revenues by product line, the self-moving equipment rental revenues are up year-over-year, as you called out for the first time in several quarters. 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 that growth on both sides? If you could comment on the relationship between the change in your self-moving equipment rental revenues year-over-year and relative to market share gains, static, etc. Thank you.
There are no accurate market share numbers. We have opinions, but there is no market share information. Half of the business involves more movement between people who rent equipment and those who use owned or borrowed equipment. Many people move in the backseat of their cars, or they borrow equipment from work. I think our gains over the last 12 months have come from a better placement of our product relative to the consumer. Jason's auxiliary materials on the website detail what percent of the population is within a certain number of miles of our locations. I believe we have likely expanded our share of the total market but not at the expense of another competitor, perhaps at the expense of owned or borrowed equipment.
Very good. I appreciate all the color. Thank you.
Our next question comes from Jamie Wilen with Wilen Management. Please go ahead.
Hi, fellows. I applaud that you look long-term in adding self-storage units, which is going to pay off down the road. But, as you mentioned, in the short term, it takes on average a three-year period for those things not to be a hindrance to the income statement. I'm wondering if you could quantify how much of a hindrance it is from those units that have not yet matured. It would be great to see that on a quarterly basis so we could see if they're declining. I can't imagine that you're going to add much greater numbers annually than you have been, but I would love to see what that number is as it impacts the income statement?
This is Joe. I feel this is like the insurance company wanting to have a device that knows if you're speeding. I appreciate you're more on my side than the insurance company. We don't have that calculation or make that calculation; Jason does it and doesn't tell me. I'm very aware of it. I've been trying to reposition us over the last 24 to 30 months to get into submarkets that allow us to fill additional rooms reliably, rather than adding tremendous rooms in downtown Los Angeles. While we're adding a little bit, that's not our thrust. We're looking for markets that provide a better cost advantage. We can't see the numbers. I don't know. I've asked Jason this question if he wants to. I think our newest projects are starting to ramp up at a better rate than two years ago. My slowness is more in the difference, but Jason, I don't remember the number, but we're down about 1.5% in same-store occupancy, which represents a lot of rooms. That's around 900 locations all down 1%. So there's a bigger drag there; there's an equal drag from the drag of new construction in my judgment, although I do not have a mathematical equation on that.
Would you still say it takes about three years for these new units to start to contribute?
Yes, I think that's true.
Yes, 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 projects that launched in the last 12 months. In the first three quarters of those projects, occupancy was lagging from our historical average. In the last quarter, it seemed to pick up, which points to management on that. We are kind of back to where we would expect to be at the end of 12 months. Overall, the new projects are not necessarily a year-over-year drag on the operating margin, but it's been a drag on return on equity and assets.
Good morning. Operating expenses were up about $35 million year-over-year. How much of that is from growing the business, having more locations and personnel compared to increases in operating expenses of the existing business?
It's a relatively small part of that. I don't have that number off the top of my head right now, but it's not a significant part.
The new locations are not significant?
No, I would say that I'll try to find the number before the call is out to verify that. But it wasn't enough to put much downward pressure on the margin, I'd say that.
Let me help you with this. Everything is coming up; utilities are up, we're getting hit 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. The challenge is to figure out how to configure things so the customer is willing to accept those increased expenses. As I pointed out earlier, the increased expense from the original equipment manufacturers on trucks; customers are not seeing that as a benefit to them.
Stephen, this is Jason. I just checked. Locations we had this first quarter that we didn't have in the first quarter of last year accounted for a little more than $2 million of additional operating expense; that gives you a flavor.
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?
It will probably be somewhere in between there. Every time I make a projection on fleet, something changes around here, and I'm usually within a couple of thousand trucks of where we're right. So we could be plus 2,000 over where we were in March or below that.
And on the last conference call, you talked about potentially reducing the fleet size by about 3,000 or 4,000 trucks, which would put it significantly lower from where we are now. Is that something that is still in the works or could happen?
This is Joe. We did that as part of our fleet. When you look at that on a model basis, we did that, and then we had the opportunity to purchase a few more trucks that became available. As I've indicated before, we've done an allocation on other trucks, and the market is softening just a tiny bit. The OEs came back with some more capacity, and we're getting them. There was some opportunism there. We think that we're going to have this persist at least through December. We think we'll get just a bit more than we had planned for ordinarily. I won't say ordinarily, but in past decades, we've been able to tell you 10 months from now what we're going to produce to the day.
Yes, we did drop about 4,000 trucks on the small end of the fleet. We picked up a few thousand trucks on the big end of the fleet. What varies the fleet more than anything else is the rate at which you sell. We have a bunch of starts and fits related to bringing new equipment in. We think we're staying relatively on program, but not as tight as we would like it to be.
Not only does the manufacturer vary the week they produce the trucks, but the supply chain has become incredibly complex and largely beyond our control. I don't know all their problems, I'm sure they're working very hard, but that impacts us. In the past, they could tell you what they'd produce in September; they could be highly accurate. They no longer have that tight of a supply chain.
And you touched on potential capital raise during the quarter. How big would that be, and what's your optimal level for cash just to operate the business going forward?
Sure. It will be in the form of a private placement of $500 million. Our optimal level of cash changes. Our floor historically has been to have enough cash to cover a year of debt maturities, excluding the fleet revolvers. We're well above that now. Over the last year, I think our net cash balances have decreased over $1.3 billion. We're going to do another large borrowing and build that back up again, as we've seen our run rate on real estate investment has been a little over $1.3 billion for 12 months. I'm trying to maintain enough cash available to sustain that pace for at least the next couple of years.
Thank you very much.
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.
Well, thanks, everyone, for participating today. As a reminder, one week from today, on Thursday, August 15th, at 11:00 a.m. Pacific, 2:00 p.m. Eastern, we will 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@uhaul.com or submitted live during the event. We look forward to speaking with you next week. Thank you.
This does conclude today's program. Thank you for your participation. You may disconnect at any time.