SEC Form 10-Q Summary
Filing entity: AMERCO, the parent company of U-Haul Holding Co. and its consolidated subsidiaries, including U-Haul, Real Estate, Repwest Insurance and Oxford Life Insurance. The filing covers the quarter and nine months ended December 31, 2020, representing fiscal 2021. The requested metadata identifies “2018 Q3,” but the provided filing is not a 2018 filing.
Business Context and Reporting Period
AMERCO operates through three reportable segments: Moving and Storage, Property and Casualty Insurance, and Life Insurance. Its principal activities include truck and trailer rentals, self-storage, U-Box services, moving supplies, related insurance products and life, Medicare supplement and annuity products. The insurance subsidiaries report on a September 30 quarter-end and are consolidated into AMERCO’s December 31 fiscal reporting period.
Key Financial Metrics
| Metric | Quarter ended Dec. 31, 2020 | Quarter ended Dec. 31, 2019 | Nine months ended Dec. 31, 2020 | Nine months ended Dec. 31, 2019 |
|---|---|---|---|---|
| Revenue | $1,170.0 million | $927.9 million | $3,482.1 million | $3,157.3 million |
| Earnings from operations | $283.9 million | $80.6 million | $829.8 million | $539.2 million |
| Earnings available to common stockholders | $183.0 million | $30.9 million | $537.1 million | $319.7 million |
| Diluted EPS | $9.33 | $1.58 | $27.39 | $16.31 |
| Operating margin | 24.3% | 8.7% | 23.8% | 17.1% |
| Net margin | 15.6% | 3.3% | 15.4% | 10.1% |
Quarterly revenue increased approximately 26.1%, while quarterly earnings available to common stockholders increased approximately 491.8%. For the nine-month period, revenue increased approximately 10.3% and earnings available to common stockholders increased approximately 68.0%.
- Revenue drivers: Quarterly self-moving equipment rental revenue rose to $808.2 million from $621.5 million. Self-storage revenue increased to $123.0 million from $106.7 million, and product and service sales increased to $74.6 million from $54.5 million.
- Storage operating trends: Average monthly occupied units increased 20% in the quarter and 17% for the nine-month period. Company-owned storage occupancy was 73.4% in the quarter and 71.0% for the nine-month period, compared with 66.9% and 68.2%, respectively, in the prior comparable periods.
- Cash flow: Net cash provided by operating activities was $1,376.6 million for the first nine months, compared with $953.0 million in the prior year. The increase included improved operating performance and $109.3 million of federal income tax refunds.
- Capital spending: Net capital expenditures were $527.1 million, down from $1,318.1 million. Gross property, plant and equipment purchases were $962.0 million, including $546.6 million of rental equipment purchases and $365.2 million for real estate acquisitions, construction, renovations and repairs.
- Liquidity: Cash and cash equivalents were $1,398.8 million at December 31, 2020, compared with $494.4 million at March 31, 2020. Moving and Storage held $1,250.3 million of cash and had approximately $93.0 million of additional borrowing capacity under existing credit facilities.
- Debt: Notes, loans and finance/capital leases payable, net, totaled $4,678.2 million, compared with $4,621.3 million at March 31, 2020. The filing lists $4,708.5 million of gross obligations before $30.2 million of debt issuance costs.
- Equity: Stockholders’ equity was $4,757.2 million, compared with $4,220.7 million at March 31, 2020. The company paid $49.0 million of common stock dividends during the first nine months.
Material Changes Versus the Prior Comparable Period
- Moving and Storage earnings from operations before equity in insurance subsidiaries increased to $789.6 million from $492.7 million for the first nine months.
- Quarterly operating earnings benefited from higher rental transactions, increased average revenue per transaction, more retail locations and dealers, higher fleet availability and increased corporate-account activity.
- Rental equipment disposal gains increased in the quarter because of higher resale values, although nine-month disposal gains declined because of reduced auction activity during COVID-19.
- Fleet depreciation declined because truck production was slowed by COVID-19-related manufacturer delays. Depreciation on other assets increased as the company expanded buildings and improvements.
- Property and Casualty Insurance nine-month operating earnings declined to $24.3 million from $27.4 million, while Life Insurance operating earnings declined to $16.7 million from $19.9 million.
- Interest expense increased to $122.2 million for the nine months from $118.0 million, primarily because of increased borrowings, despite lower market interest rates.
- Investment and interest income declined to $85.9 million from $102.6 million for the nine months, reflecting lower short-term interest rates, investment valuation changes, derivative losses and credit-loss effects.
Guidance, Outlook, Risks and Unusual Items
- Management expects fiscal 2021 truck and trailer fleet reinvestment of approximately $420 million, net of equipment sales and excluding lease buyouts. Approximately $111 million had been invested through the first nine months.
- Management intends to continue increasing rental transaction volume, pricing, product availability and utilization, expanding storage capacity and occupancy, and investing in the U-Box program.
- Management slowed self-storage development and acquisitions to preserve liquidity and expects capital spending to remain dependent on COVID-19 effects, financing availability, project timing and market conditions.
- COVID-19 adversely affected first-quarter results, equipment sales and manufacturer production. Management reported improvement in the second and third quarters but stated that the pandemic could materially affect future operations, financial position and liquidity.
- The CARES Act is expected to generate approximately $381 million of tax benefits and refunds. The company had received $109.3 million through December 31, 2020 and expected additional refunds, but future legislation could reduce or delay recovery.
- The company adopted the current expected credit loss standard, recording a $2.9 million cumulative reduction to opening retained earnings. The allowance for credit losses was $5.7 million at December 31, 2020, and no incremental investment impairment charges were recorded during the nine months.
- Material risk areas include leverage and debt service, interest-rate exposure, COVID-19, fleet availability and manufacturer concentration, used-equipment resale values, regulation and environmental compliance, insurance claims and reinsurance recoveries, dealer dependence, litigation, and potential carbon-emission or alternative-vehicle requirements.
- Interest-rate sensitivity disclosures indicate that a 100-basis-point increase in LIBOR would reduce annual earnings and cash flows by approximately $9.3 million after hedging effects. Variable-rate debt obligations totaled approximately $1,167.4 million.
- Management stated that disclosure controls were effective and that no material changes occurred in internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Confirm the applicable period: the supplied filing is for December 31, 2020 and fiscal 2021, not 2018 Q3.
- Assess whether the exceptional growth in rental revenue and margins is sustainable after pandemic-related mobility and demand changes.
- Reconcile cash availability between consolidated cash, insurance-subsidiary restrictions, unused credit capacity and scheduled debt and lease maturities.
- Review the company’s reliance on debt, lease financing, used-truck sales and equipment resale values to fund fleet replacement and growth.
- Track the timing and collectability of the remaining CARES Act tax refunds and any changes in tax legislation.
- Evaluate storage occupancy, newly added capacity and the pace of self-storage investment, particularly because new capacity initially had low occupancy.
- Review insurance-company capital and dividend restrictions, investment portfolio performance, policyholder obligations and exposure to interest-rate and equity-market movements.
- Monitor COVID-19 developments, vehicle-manufacturer delays, environmental and transportation regulation, and potential requirements related to electric or autonomous vehicles.