U-Haul Holding Company Second Quarter Fiscal 2027 Investor Call - U-HAUL HOLDING CO

Financial Performance:

• Net earnings reached $137 million for Q2 FY2027, up from $106 million in the prior year; EPS was $0.71 for non-voting shares compared to $0.54.
• Adjusted EBITDA for the moving and storage segment increased $5 million to $548 million.
• Equipment rental revenue rose $37 million, driven by increases in both transaction volume and revenue per transaction (higher miles and rates).
• Storage revenue grew $16 million (approx. 6% YoY), with average revenue per occupied foot improving just under 3%.
• Capital expenditures on new rental equipment were $466 million, a $275 million decrease YoY; net fleet CapEx for the first six months is down $223 million, with a full-year decrease of over $500 million projected.
• Depreciation on the equipment fleet reached a cyclical inflection point, decreasing $4.5 million in the quarter, while losses on equipment disposal fell $34 million to a net loss of $4 million.
• Cash and available loan facilities at the moving/storage segment totaled $1.335 billion as of September 30.
• Company repurchased $10.1 million in voting shares and $68.2 million in non-voting shares in Q2, leaving approximately $224 million remaining in the buyback authorization.

Guidance and Future Outlook:

• Management projects a continued trend of reduced CapEx, with the pace of development spending approaching a steady state as the storage pipeline stabilizes.
• October revenue trends are higher than Q2 results; transaction counts turned positive for the trailing 12 months in October, signaling a potential shift toward growth.
• Miles per transaction and revenue per mile for one-way rentals have shown improvements over the last three quarters, suggesting a recovery in move distance.
• The company anticipates operating leverage improvements as non-moving revenue (storage, UBOX) grows faster than equipment rental, structurally increasing margins over time.
• Freight and shipping costs are expected to remain elevated due to industry-wide trends; U-Haul plans to offset this via rate adjustments and load-sharing programs rather than expecting cost reductions from carriers.

Business Segments and Product Lines:

• Moving & Storage: Added 63 new company-operated locations and net 500 independent dealers; in-town transactions increased while one-way revenue per transaction improved.
• Self-Storage: Same-store occupancy decreased 110 basis points to 89.5%; net move-in/move-out activity remains consistent but below goals. New customer rental rates increased ~2%, while churn rates are ~1% lower.
• UBOX: Program returned to revenue growth; driven by a combination of container volume and storage conversions. Covered warehouse space growth is outpacing revenue growth as the network expands.
• Real Estate: Invested $432 million in real estate acquisitions and development in the first half of FY2027 (down $94 million YoY); currently 5.5 million sq. ft. in active development across 110 projects with another 5.5 million sq. ft. in the unstarted pipeline.
• Dealer Network: Expansion efforts added a net 500 dealers; management notes this progress is slower than desired but essential for fleet distribution and future growth catalysts.

Market and Competitive Landscape:

• No structural demand catalysts (like the post-pandemic surge) are currently identified; growth is viewed as a function of execution, specifically dealer expansion and operational efficiency.
• The shift toward non-moving revenue (storage/UBOX) is highlighted as a competitive advantage due to higher customer stickiness (average storage duration >30 months vs. single-use moves).
• Storage occupancy and new customer rates remain resilient despite a slight dip in same-store occupancy, indicating pricing power and operational improvements.
• Management notes the storage and UBOX segments now constitute over 25% of total U-Haul revenue, up significantly since Q2 FY2022.

Risks and Challenges:

• Freight and shipping costs remain a significant headwind, increasing by nearly $24.5 million in the quarter; these costs are unlikely to decrease in the near term.
• Personnel costs and self-insurance liabilities increased by over $21 million combined, impacting adjusted EBITDA margins.
• Adjusted EBITDA margin in the moving/storage segment decreased by 90 basis points primarily due to increased operating expenses and depreciation.
• Storage net move-in activity remains below internal goals, and the dip in same-store occupancy (89.5%) requires attention.
• External macroeconomic factors remain uncertain, with management noting a lack of "mega catalysts" to drive immediate demand surges.

Management Commentary and Tone:

• The tone was cautiously optimistic; management emphasized durable, steady revenue growth and successful execution on cost containment (CapEx and depreciation).
• CEO Joe Schoen was absent, represented by CFO Jason Berg and U-Haul International President JT Taylor.
• Berg expressed confidence in the durability of revenue growth and the structural margin improvement driven by the shift to high-retention storage products.
• Management highlighted the "cyclical inflection" of depreciation and gains on sales as a key financial tailwind.

Analyst Questions and Answers:

• UBOX vs. Self-Storage Growth: Analyst asked if UBOX is outpacing self-storage. Management clarified that while UBOX is growing, most containers are used for storage after moves; conversion of traditional storage customers to UBOX is an opportunity but not yet a systemic trend.
• UBOX Warehouse Pipeline: Questions on warehouse expansion vs. revenue were answered with confirmation that UBOX real estate spend is trending down as the "hub and spoke" network reaches maturity in major markets.
• Freight Cost Trajectory: Management reiterated that freight costs are industry-wide and unavoidable, but U-Haul is optimizing processes, adjusting customer rates, and utilizing load-sharing to mitigate impact.
• Operating Leverage & Historical Cycles: Analyst compared current fleet depreciation peaks to 2004 and 2009. Management attributed past success to management focus and fleet conditions, noting that current focus is on dealer expansion to drive future growth, though the timeline for impact is unclear.
• Growth Catalysts: Analyst asked for "canaries in the coal mine" for growth. CFO identified positive trailing 12-month transaction growth (shifted positive in October) and increasing miles per transaction as key indicators of a market upturn.

Other Key Points:

• AI tools are being rolled out internally to assist field teams and optimize processes, though not used for autonomous decision-making.
• The "dip" in Q3 operating margin is largely attributed to freight and personnel costs; management expects a positive variance in fleet liability costs in the second half of the year.
• Storage operations are focusing on maintenance and customer reviews during the off-season to prepare for the next growth cycle.
• The company is balancing liquidity and share repurchases given market volatility, viewing non-voting shares as undervalued.