Q2 2020 Earnings Call
[noise] could you enroll Finance Corporation earnings Conference call for the second fiscal quarter ended December 31 or 2019.
Hosting the call today from the company's corporate offices in Pasadena, California are Mr., Jody Miller, President and Chief Executive Officer, Mr., Charles Peretz Executive Vice President and Chief Financial Officer. Today's call is being recorded in will be available for replay beginning at 230 PM Eastern time.
At this time, all participants have been placed in a listen only mode and the floor will be opened for your questions. Following the presentation. It is now my pleasure to turn the floor agreed to Mr., Chris The Wilson, Vice President General Counsel and sick Secretary of General Finance Corporation. Please go ahead Mr. Watson.
Thank you operator before we begin today I would like to remind you that this conference call may contain certain forward looking statements.
Such forward looking statements include but are not limited to our views with respect to future financial and operating results competitive pressures increases in interest rates for our variable interest rate indebtedness.
Really to raise capital or borrow additional funds the availability of sufficiently qualified employees to shop purposes changes any Australia, New Zealand or Canadian dollar relative to the U.S. dollar regulatory changes customer defaults or insolvencies litigation acquisition of businesses not performance, we expect that are good.
Go for us to integrator control, our ability to secure adequate levels are products to meet customer demand.
Our ability to procure adequate supplies for our manufacturing operations labor disruptions adverse resolution of any contract or other to speed to customers declines in demand for our products and services for key industries, such as the Australian construction and transportation industries.
Here's construction in oil and gas industries or write off of all or part of our goodwill and intangible assets.
These risks and uncertainties could cause our actual outcomes results to differ materially from those described in our forward looking statements.
We believe that the expectation is represented by our forward looking statements are reasonable that there can be no assurance at such expectations will prove to be correct.
For more details regarding these risks please see the risk factor section of our part periodic reports filed with the FCC and posted to our website Www Dot General finance Dot com.
These forward looking statements represent the judgment of the company at this time and General Finance Corporation disclaims any intention or obligation to update our forward looking statements.
In this conference call. We May also discuss certain non us GAAP financial measures such as adjusted EBITDA.
A reconciliation of how we define and arrive at adjusted EBITDA is in our earnings release and will be included in our quarterly report on form 10-Q.
Now I turn the call over to Jody Miller, President and Chief Executive Officer Jody. Please go ahead.
Thank you Chris Good morning, and we appreciate you joining us today for a second quarter fiscal year 2020 conference call.
I'll begin with a brief discussion of our operations than our CFO Chuck branches will provide a financial overview and our outlook for the remainder of the fiscal year.
Following his remarks, we'll open the call up for questions.
Before I turn to our results I want to comment about the recent Bushfires, Australia, where Royal Wolf operates.
Heartfelt support those after the people of Australia in these difficult times, we were fortunate that none of our staff were proper property has been significantly impacted by the bush buyers a number of our team members at Royal Wolf been involved with the relief efforts and we'll continue to help those in the communities have been impacted as they look to recover and rebuild.
Now turning to our results.
Our core North American leasing operation again delivered strong quarterly performance Pac man continues to generate exceptional results delivering 11% year over year increase in leasing revenues.
Driven by strength across nearly all sectors.
Our containerized fleet led the way with 15% growth and rental revenues driven by a combination of higher units on lease and moderate price increases.
Year to date containerized rental revenue growth is 18%.
Our team at Pac Man is doing an excellent job executing on a strategy. Our national accounts program continues to win business at a very strong quarter.
Our recently introduced Pvthree safety container is gaining acceptance with customers at quarter end, 9% Pac man portable containers were equipped with the Pvthree safety locking system.
We plan to increase the penetration of this exceptional value added product.
Hi, Good main remained highly recommended by our customer base once again, achieving world class net promoter score of 85 for the most recent quarter and 86 for the trailing 12 months.
Offsetting strong growth Pac man was the ongoing softness in the liquid container business at Lone Star, which recorded lower results for the quarter due to decrease in oil and gas activity in Texas.
As we've indicated on past calls the vast majority of our work in the sector involves completion and production work and not with the initial drilling of the well.
In the back half of the calendar year 2019, many of our customers scaled back on their completion work.
As the exercise restraint on their capital spending in order to generate higher cash flows.
Given the large number of wells on both basins that have already been drilled and now waiting completion and given indications. We're hearing from a number of customers about their plans to increase completions in 2020.
We believe that we will see improved activity down the road and therefore, we remain cautiously optimistic about this business.
Our North American manufacturing operations posted a slight EBITDA loss during the quarter sales to external customers are lower due to reduced sales in liquid containment tanks and chassis. The intercompany sales to Pac van remained healthy driven by higher demand for the ground level offices.
Now turning to the Asia Pacific region.
Our second quarter results in Asia Pacific region were impacted by slightly lower revenues and declining Australian dollar relative the U.S. dollar. However, leasing revenues increased in local currency for the 13 other last 14 quarters and was up 5% in the second quarter with higher leasing revenues across most sectors, notably in education.
Government consumer and moving and transportation.
Leasing revenues growth was primarily driven by higher year over year average lease rates.
Our Royal Wolf team remains focused on building upon us leading market position across both Australia, New Zealand through a combination of organic growth greenfield openings and as extent they become available accretive acquisitions.
During the quarter, we opened one greenfield location in Australia.
To conclude we continue to have both organic growth and expansion opportunities in North America, as well as ability to strengthen our market leadership in Asia Pacific region.
Our second quarter performance was generally in line with our expectations, but not without its challenges in our liquid containment business. We are proud of the success that we're seeing Angela Pac man and Royal Wolf and working hard towards improving the results in Lonestar all of which should lay the groundwork for strong performance in the years ahead.
I'll now turn over the call Chuck brand as for his financial review and our outlook for the remainder of the fiscal year.
Thank you Jody will be filing our quarterly report on form 10-Q, shortly at which time. This document will be available on both the Fccs Edgar filing system and on our website and encourage investors and other interested parties to read it as it contains a substantial amount of information about our company some of which we will discuss today.
Now turning to our financial results.
Total revenues were 92.1 million in the second quarter fiscal year 2020, compared to 98 million for the second quarter fiscal year 2019.
Leasing revenues were 60.8 million down from 63.5 million in the prior years quarter and comprise 67% of total non manufacturing revenues for both periods leasing revenues, excluding the oil and gas sector and foreign exchange rates increased by 9%.
Non manufacturing sales were down 29.7 million in the quarter compared to 31.8 million in the prior year period.
And our North American leasing operations revenues for the second quarter fiscal year, 2020 totaled 60.6 million compared with 63.9 million for the second quarter fiscal year 2019, a decrease of 5%.
Leasing revenues decreased by 6% on a year over year basis. The decline in deep leasing revenues was primarily in the oil and gas sector substantially all attributable lonestar, while being partially offset by increases in the construction commercial retail and industrial sectors sales revenues decreased by 3% primarily in the industrial education.
Services sectors, while being partially offset by increases in the construction in commercial sectors.
Revenues at our North American manufacturing operations for the second quarter were 3.1 million include an intercompany sales of 1.5 million from products sold to our North American leasing operations.
This compares to 3.6 million of total sales, including intercompany sales of 946000 thousand during the second quarter fiscal year 2019.
The Jody mentioned, our manufacturing operation saw reduced demand for Frac tanks, and chassis offset by increased demand for ground level losses built for pack phase.
In our Asia Pacific leasing operations revenues for the second quarter totaled 29.9 million as compared to 31.4 million for the second quarter fiscal year 2019, a decrease of 5%. However on a local currency basis total revenues were relatively flat leasing revenues were up by less.
1% on year over year basis, but as Jody mentioned previously increased by 5% on a local currency basis.
Consolidated adjusted EBITDA was 26.4 million in second quarter 2020, compared to 29.7 million in the prior years quarter and adjusted EBITDA margin as a percentage of total revenues was 29% for the second quarter fiscal 20.
Down from 30%.
From the second quarter fiscal year 19.
In North America, adjusted EBITDA for our leasing operations was 19.9 million in the second quarter compared to 22 million for the year ago quarter, adjusted EBIT that tax rate increased by 14% to 17.6 million from 15.4 million in second quarter fiscal year 2019, and adjusted EBITDA at Lone Star decreased two point.
3 million from 6.6 me in the year ago quarter.
For our manufacturing operations on a standalone basis, adjusted EBITDA was a loss of 97000 for the quarter Kopin compared to last year's second quarter adjusted EBITDA of 228000.
Asia Pacific's adjusted EBITDA for the quarter was 7.9 million compared to 8.6 million in the second quarter fiscal 19, a decrease of 8% on a local currency basis adjusted EBITDA decreased by approximately 4%.
Interest expense for the second quarter of 2020 was 6.9 million down 2 million from 8.9 million in second quarter of last year. The decrease was comprised of a reduction of 1.2 million in North America in 800000 in the Asia Pacific in North America. The lower interest is mainly due to lower weighted average interest rate of 5.8 versus 7.2 in the year.
Go period in the Asia Pacific the lower interest expense was due to lower average borrowings a lower weighted average interest rate lower average weighted interest rate of 7.7 compared to 8.9 in the previous quarter and by a weaker Australian dollar between the periods.
Net income attributable common stockholders in the second quarter was $9.5 million or 30 cents per diluted share compared to a net loss of $5.1 million or 17 cents per share in the year ago quarter.
Including these results were a noncash benefit of $3.9 million and a noncash charge of 9.3 million in fiscal years 2020 to 19, respectively for the change in valuation of Standalone bifurcated derivatives.
Both periods include 922000 for the dividends paid on our preferred stock.
For the first six months of fiscal two that fiscal year 2020, we generated net cash from operating activities of 37.5 million up from $19.4 million in the prior year period, and mainly the result of improved profitability in working capital management.
Now turning to our balance sheet at December 31, the company had a net leverage ratio of 3.8 times for the trailing 12 months, which is comparable with the net leverage ratios at both September Thirtyth in June 32019, we've reduced our cost of capital and enhance our financing flexibility over the past couple of years.
Continue doing so over the remainder of this calendar year.
Turning to our company wide outlook for the remainder fiscal year 2020 on our first quarter earnings call. We stated a consolidated revenues for fiscal 2020 were expected to be in the range of 370 million to 290 million in the consolidated adjusted EBITDA was expected to be in the range of plus or minus 4% in the fiscal year 2020 from fiscal.
Your 2019 based on our year to date results. We now expect that consolidated revenues for the fiscal year 2020 will be in the range of 365 million to 375 million in the consolidated adjusted EBITDA will be in the range of minus two to minus 8% in fiscal year 2020 from fiscal year 2019.
This outlook does not take into account the impact of any acquisitions that may occur in fiscal year 2020.
This now concludes our prepared comments and I would like to turn the call back to the operator for the question answer session.
You asked a question you need to press star one on your telephone to address your question pressed upon Keane. Please standby will become out of Q1 day roster.
Your first question comes from Scott Schneeberger with Oppenheimer.
Thanks, very much good morning, guys.
Hey, Scott.
Hey.
I would go through a few of Euro your segments and we start with Pac van.
Another really good looking quarter.
Could you address you cite in the in the press release, some the end markets that drove spring could you speak specifically to two retail.
And the others, but a retail with with seasonal.
Activity, including the commentary thanks.
Sure. Thanks, Scott This is Jerry.
Retail season was good one of our largest customers were up around 1500 units national account business picked up which obviously some of those are our retail. So we did have a strong.
Retail season, but just overall demand in general is really good with with Pac man with again growing 18%.
Year to date, so very happy with what the performance of back then.
Excellent. Thanks can you speak a little bit to the pricing environment impacting given the strong demand environment.
Yes, we actually.
We've been pretty stable and our and our price increases and there was a slight uptick.
Even even from previous quarter. So we're very happy with the trends and don't really see any reason that they'll change going forward.
Very robust pricing.
Excellent and then ground level offices have been had been very much in demand.
Recently.
And it looks like that will persist just I'd love to get your comments on that and and what the Pac man strategies surrounding that asset. Thanks.
Yeah, It's a great product again, there is just so many advantages to the ground level offices versus the wheeled mobile offices. So we look for that demand to continue and were actually pretty excited we're introducing a new ground level office with restroom.
Recently to set will be a new product coming out and we're excited about the ground level offices glows or are doing well and we see them to come.
Continue our.
Year over year price increase on glows is just a little over 8% so again very robust.
Excellent. Thanks.
Asia Pacific.
Obviously, you mentioned Fortunately your employees and property base were relatively unscathed by the wildfires.
So that quite fortunate the.
The.
They were still profound though as far as what we were what we're seeing in the news.
Was there much.
Influence on or will there be much influence in the in the upcoming quarter or quarters from the from the fires.
Yes, so it's kind of a pro and con we had a large sale that got pushed.
Because of the the.
Bush buyers the roads and site.
We are damage. So that was that was a coupon, but obviously anytime there's this type of damage.
Theres a tremendous.
For our type product to store goods and offices and things like that so.
We do have business happening as we speak for the the Bushfires, we've got hurt a little bit on certain things and gained a little bit but net net it will be to be positive for business.
Thanks, and then on leasing over in Asia Pac, 5% on local growth on local currency basis.
And it was you cited across all sectors, except for one or two how was how is your seasonal activity in that geography.
Yes, they really don't have the type of seasonal activity that we knew there is some but not near the impact that that we have here with the retailer. So most of theirs is through many different sectors.
Really had nothing to do with retail directly it is a small part of their their business.
Thanks, and then lastly, maybe bring Chuck in on this to the in Lonestar, obviously, we understand the dynamic in the at the end market. There how is the visibility.
For volumes and and how is that factored into the guidance for the balance of the fiscal year. Thanks.
Yes, I mean, we had said the last on the last call that we look for things to pick up but the first the year, we stay in very close contact with our customers because they need our product from day, one when when they're either fracking you're completing a site for drilling so.
We we obviously stay very close to those customers and they've always said that we're going to ramp up after the first the year I'm happy to report January was with an uptick.
For US we had one of the best months, we've had in several months so going back to late summer early.
Early fall level. So we're hoping that will continue and we're cautiously optimistic that will.
Sounds good I'll turn it over thanks very much.
Thanks Scott.
Your next question is from same Jeremy.
Thats and.
Hey, good morning, gentlemen.
Hey, good morning, good morning.
Just a follow up on Scott's earlier question can you talk about the quoted a rate with regard to lonestar, if they're kind of stabilizing through January uptick.
Yes, they seem to be again, we.
We were cautiously optimistic that was going to happen based on the feedback we have received from our customers and kind of fell right in the in place and.
In January and maybe even slightly above where we are hoping it would be so.
And we're just hoping that will continue the pricing definitely have stabilized and.
And there seems to be a loosening of.
Capex to start the new years, so I think they have just naturally.
As I mentioned earlier on the on the prepared comments the the downturn was just the preserving capital and increasing cash flow they got a new budget.
New year, and things are or seem to be picking up a bit.
Got it and then for asset classes outside of liquid containment can you provide us the growth rate for this last quarter.
Excellent there in particular.
So in in North America, so, but I'll do saying is.
If I give you the the average rates would that be probably that's what we disclosed in the Q.
Sure.
So in in the second quarter storage containers were 79% average for Q2.
Office containers, 80%.
Mobile offices were 84%.
Modular units were 82%.
And the beauty, the frac tank containers or 64%.
Okay.
Thank you then one last one with regards to situation currently going on in China.
Presenting any headwinds for you in terms of like your sourcing new units or any sort of indirect impact to your Asia Pacific businesses that you were seeing this last quarter or current quarter I guess.
It's too early to tell we haven't seen any impact yet, but talking to some of the suppliers some of the factory production.
Is it down.
A lot of factories have ramped back up so if that continues for several months it could impact a little bit on the supply and drive up pricing on containers a bit but we've had containers on order there already coming in for spring and we have a normal flow. So it really is not a factor until we get in the probably the may.
Timeframe and then if supply is limited than that could start to.
Probably push up pricing, but but less on on new capex coming in but it's too early to say.
Okay. Thank you.
Okay.
And again, ladies and gentlemen, and star one if you would like to ask a question at this time.
Your next question is from Evan Dreyfus with RMB capital management.
Good morning, I, just had a quick capital structure question for Chuck.
You have two pieces in your cap structure, a 9% preferred and an eight.
Eight and when a baby bond that's going to be do and.
In months and your credit story is improving your leverage is down the 10 year treasuries at 155, So we're curious as to.
The delay and trying to refinance. These these are both callable and with your debt structure in Asia Pacific and in North America at the Opco. We think you could probably issue a bond and it's a really really name rates are quite low and Iot markets open. So we're just looking for an update on what you're trying to do.
That is that is pretty much on on point, we are looking at the refinancing of our senior notes.
With the intent to now im not the last call in this obviously as go through the board, but of calling the preferred stock through the senior offering.
We do have the capacity to theoretically.
Pay the preferred stock through the North America facility, but it is an ABL and we want to keep the capacity.
For our continued growth into our core business had Pac van right, So whether it's organic fleet or whether its acquisitions.
Which we have not done in the first six months, but the pipeline looks very good for the next six months. So we prefer to pay off deferred stock through the refinancing the senior notes, we which we are looking.
Okay and is it your intention to.
Keep this structure as is each each division would have its own the credit line in North America, Anna credit line down in the Asia Pacific was it better do a little bit hold that is that intent because of the practicality is it'd be very difficult to have a a worldwide able or credit facility. We've looked at that so as it is.
That is the way we're going to do it.
Going forward to the Asia Pacific, we intend as the leverage gets lower in Australia.
To ultimately refinance into a more traditional senior facility our facility and they are excellent partners, which led by Deutsche Bank.
To date, which includes highbridge.
Our little a little higher normal senior facility because of the leverage which is to about 3.8 in Australia, we need to get us very well. Thank you and good luck share. Thank you.
Okay.
And again, ladies and gentlemen star one back to ask your question at this time.
And there are no further questions at this time.
Alright, Thank you operator I'd like to thank you for joining our call. Today. We appreciate your continued interest in General Finance Corporation and look forward to speaking to you next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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