Q4 2020 General Finance Corp Earnings Call
Welcome to General Finance Corporation earnings Conference call for its fourth quarter fiscal year ended June Thirtyth 2020.
Hosting the call today are Mr., Jody Miller, President and Chief Executive Officer.
Charles for on Test Executive Vice President and Chief Financial Officer.
Today's call is being recorded and 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 four be open for your questions. Following the presentation.
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It is now my pleasure to turn the call over to Mr., Chris Wilson, Vice President General Counsel [laughter] <unk> Finance Corporation. Please go ahead Mr. Wilson.
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 rate interest rate indebtedness.
Our ability to raise capital or borrow additional funds.
He is the ability of sufficiently qualified employees just effort businesses.
Changes in the Australia, New Zealand or Canadian dollar relative to the U.S. dollar regulatory changes customer defaults or insolvencies litigation.
Position of businesses that do not performance, we expect for that are difficult for us to integrate or 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 discretes for customers.
Client demand for our products and services from she industries, such as the Australian construction and transportation industries or the U.S. construction in oil and gas industries.
The disruption of operations from catastrophic were extraordinary events, including viral pandemic such as the coated 19, krona virus or a write off of all or part of our goodwill and intangible assets.
These risks and uncertainties could cause 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, but there can be no assurance such expectations will prove to be correct.
For more details regarding these risks please see the risk factor section in our periodic reports filed with the FCC and posted or website at Www Dot General finance Dot com.
These forward looking statements threats represent the judgment or the company at this time and General Finance Corporation disclaims any intention or obligation to update forward looking statements.
In this conference call. We will also discuss certain non U.S. 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.
And 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 fourth quarter fiscal year 2020 conference call.
I will begin with a brief discussion of our operations than our CFO Chuck brands will provide a financial overview and our outlook for the current fiscal year.
Following his remarks, well open the call for questions.
Before I turn to our results I want to provide an update on how our company is managing through this ongoing global pandemic.
First I'd like to say, the physical health and safety of our employees are for most concern I don't personally. Thank all of our dedicated employees for all their efforts through these challenging times.
As I mentioned on our last call. We are considered a central business and therefore locations remained open across all of our venues operating under flexible work practices, while maintaining the same level safety and service.
Well the economic fall out and pandemic has been widespread is impact in certain sectors of the economy more than others, but also created new opportunities as well.
Our core container business in both North America, and Asia Pacific continue to perform well in these challenging times.
Overall leasing demand has improved and numbers sectors, but also slowed and others.
From a product perspective, our modular products, particularly our ground level offices continue to see the highest demand across all of our core product offerings.
With respect to our product sales business overall demand has softened as expected, but offset by some pandemic related larger sales.
Our liquid containment business, which primarily operates in Texas through Lonestar continues to face adverse conditions. The lack of demand an oversupplied driven by the pandemic has severely disrupted the entire oil and gas sector.
Even though oil prices that recently rebounded from earlier lows, our customer production levels remain low and we've experienced pressure on both utilization and pricing.
We have implemented implemented measures to control our cost without sacrificing our service or safety.
As I mentioned, our last call. This strategy served as well in the last downturn as we emerged from that period with more business from existing and new customers.
We are weathering this crisis expect be well positioned to serve our primarily blue chip customers when oil market normalizes.
On the manufacturing side or southern Bad business has remained fairly active during this period as we continue to receive orders for GE low modifications. Both for do that traditionally uses as well as cobot 19 related applications.
In summary, while our aim unable to predict the ultimate severity or duration. The economic fallout caused by the pandemic are experienced management team has successfully navigated through challenging times in the past.
Our resilient business model anchored by our containerized fleet with long economic life, and very low maintenance requirement provides us with the ability to hands free cash flow and reduce debt.
We will continue to manage our Capex and acquisition investments, where we have high degree of discretion, when making capital allocation decisions.
We're also fortunate to have the strongest financial position as well the strongest liquidity, we've ever had as a company and are well positioned to persevere through this crisis.
Now turning to a brief overview of our results.
Our fourth quarter full year results were influenced by many of the same trends, we have been experiencing a little past several quarters.
Our core North American leasing operation again generated higher revenues and adjusted EBITDA for the fiscal year 2020.
Due to the diversified customer base and expanding geographic presence.
Pac man has increased nearly across all sectors generating 8% increase in leasing revenues and 11% increase in adjusted EBITDA.
This marks the ninth consecutive year Pac van is delivered annual improvement in both revenue and adjusted EBITDA.
Which has grown at a compound annual rate of 16% and 22% respectively.
In addition, leasing revenues in our core container business NGL products increased 12% and the physical 2020.
The strong track record as a result of both organic growth and geographic expansion through acquisition in Greenville openings.
Pac Van has expanded its footprint from 25 locations in 2010.
Before today now serving over half the top 100 him essays in the U.S.
Along with all the growth of Pac van continues to be highly regarded by its customers achieving a world class net promoter score of 88 for the quarter and 85 for the full year.
We remain focused on long term goals of growing Pac man footprint throughout North America geographically, expanding a portable storage NGL business.
During the year, we completed one acquisition and enter to new markets through Green Greenfield locations.
Offsetting the stronger the Pac van was the continued softness in the liquid containment business at Lone Star, which recorded lower results for the quarter end the year.
As I mentioned earlier, we're being proactive on cost control and focused on generating positive cash flow through this crisis.
Our North American manufacturing operations posted lower revenues and adjusted EBITDA for the quarter end the year.
They experienced reduced sales and liquid containment tanks and specialty tanks offset somewhat by increase NGL low modifications and sales of other specialty products.
Now turning to the Asia Pacific region.
Our full year full year results Asia Pacific region were higher in local currency were negatively impacted by weaker Australian dollar relative to the U.S. dollar between periods.
In local currency leasing revenues increased in the fourth consecutive year has grown averaged just over 5% during that period.
Sales revenues were up modestly for the year as well.
Over the last four years management at Royal Wolf has made progress increasing overall mix of leasing revenues to total revenues.
Ever product sales continue to be important contributor to overall performance of the company and will vary year to year, depending on the timing of large customized projects.
Our role team remains focused on helping us customers get through the disruption caused by the pandemic, which may take somewhat longer than originally expected in Australia do that recent resurgence of cases into the largest states.
New South Wales and Victoria.
New Zealand markets are also expected direct returned to more normalized condition in the near future. Despite a new cluster cases in the most populous city voc them.
To conclude our fourth quarter and full year performance was somewhat better than our expectations, but not without its challenges.
Our full year 2021, likely even be more challenging because the ongoing disruption caused by the cobot 19, particularly in oil and gas sector.
We continue to monitor the situation across all of our business units and remain focused on preserving liquidity and minimizing the impact on our profitability, while sharing the safety of or employees.
I'll now turn the call over Chuck brand as for financial review.
Outlook for next fiscal year.
Thank you Jody.
We'll be filing your annual report on form 10-K, shortly at which time. This document will be available in both the fccs it for filing system and on our website.
Encourage investors and other interested parties to read it.
Changed substantial amount of information about our company some of which we will discuss today.
Turning to our fourth quarter financial results. Our total revenues were 84 and a half million in the fourth quarter of the current fiscal year compared to 96.2 million for the fourth quarter of prior year.
Leasing revenues were 50.4 million down from 59.1 million in comprised 60% of total non manufacturing revenues for the quarter down from 63% in the prior year.
Leasing revenues in our core non tank products increased by 6% in North America, and 4% in local currency the Asia Pacific driven primarily by strong jilla demand and improve lease rates across both of our geographic venues.
Non manufacturing sales, it's 33.3 million in the quarter down from 34.3 million in the prior year period.
In our North American leasing operations revenues for the fourth quarter totaling 55.3 million a decrease of approximately 1% leasing revenues decreased by 19% and the decline was primarily the oil and gas sector substantially all attributable lonestar. It was partially offset by increased across the majority of our sectors, particularly construction.
Sales increased by 10% driven by increases in retail commercial industrial and services sectors, while being partially offset by a decrease in mining sector.
Sales in our North American manufacturing operations for the fourth quarter for 2.3 million, including income intercompany sales of $1.3 million from products sold to our North American leasing operations. This compares to $4.2 million total sales, including intercompany sales of 1.4 during the fourth quarter of prior year.
Our manufacturing operations experienced low demand from external customers for specialty tanks and chassis.
In our Asia Pacific leasing operation revenues for the fourth quarter totaled 20.2 million.
Decrease of approximately 11% from the prior year. However on a local currency basis total revenues decreased by only 5% the declining revenues in local dollars is primarily due to declines and the education industrial and consumer sectors, largely offset by increases the utilities and transportation sectors.
Fourth quarter 2020, the utility sector, including one large sale for 5.6 Australian dollar 5.6 million Australian dollars in the transportation sector had one large sales 1.7 million Australian dollars.
Leasing revenues decreased 2% on a year over year basis, and as I mentioned previously increased by 5% on a local currency basis, driven primarily by increasing the government construction consumer in healthcare sectors, and partially offset by decreases the education special events in industrial sectors.
Well Wolf in local currency has experienced year over year quarterly increases in leasing revenue for 15 over the last 16 quarters.
Consolidated adjusted EBITDA was 22.7 million in the fourth quarter of 2020 compared to $26.1 million prior years quarter, and adjusted EBITDA margin as a percentage of total revenues was 27% for both periods.
In North America, adjusted EBITDA for our leasing operations was 50 and a half many on the fourth quarter compared to 19 mean for the year low quarter, a decrease of 18%.
However, adjusted EBIT impact and increased by 3% 15.2 million in the fourth quarter was more than offset by adjusted EBIT at Lonestar decreasing to approximately $300000 for 4.3 million in the year ago quarter.
So.
For our manufacturing operations on a standalone basis, adjusted EBITDA was 223000 for the quarter compared to last year's fourth quarter adjusted EBITDA of 634 thoughts.
Asia Pacific's adjusted EBITDA for the quarter was 8.7 million compared to 8.8 million into your goal quarter, a slight decrease of approximately 2% in us dollars, but on a local currency basis adjusted EBITDA increased by 4%.
Interest expense for the fourth quarter 2020 was 6.1 million down from 7.6 million last year. The decrease was comprised of a reduction of 1.3 million in North America and 200000, the Asia Pacific.
In North America, the low interest due to both lower average borrowings on a lower weighted average interest rate of 4.8% versus 6.2% in the year ago period in the Asia Pacific area in the lower interest expense was primarily due to lower average borrowings as well as a weaker Australian dollar between the periods.
Net loss attributable to common stockholders in the fourth quarter was approximately 700000 or two cents per diluted shares compared to net income attributable to common stockholders, the 4.3 million or 14 cents per to share the year ago quarter.
Including these results was a $14.2 million non cash goodwill impairment charge related lonestar and a 1 million non cash benefit for the change in valuation Standalone bifurcated derivatives.
During the fourth quarter last fiscal year was at $1.7 million non cash charge for the change in valuation Standalone bifurcated derivatives.
Both periods also include approximately 900000 for the dividends paid on our preferred stock.
For the fiscal year 2020, we generated net cash from operating activities of 76.6 million up from 52.1 million in the prior year, primarily result of improved profitability in working capital management.
Turning to our balance sheet at June Thirtyth. The company had a net leverage ratio 3.7 times for the fiscal year, which is consistent with June 30 of last year. However, our net debt level drop from 411.1 million at the beginning of last year.
Getting a bit of this year to 379.8 million at year end as we focus on generating cash flow and maintaining ample liquidity.
We currently evaluating various financing alternatives to refinance our eight and an 8% senior notes due July 2021, with the goal of extending our debt maturities and lowering our overall cost of financing.
Our financial position liquidity are strong we expect to continue to generate free cash flow in fiscal year 2021.
Turning to our company wide outlook for fiscal year 21, well, we're closely monitoring the situation the impact of Cobot 19 of the cold 19 pandemic is fluid.
Continues to evolve and therefore, it's difficult to predict full extent, which are results of operations liquidity and financial position will be impact fiscal year 21, However, given our current outlook and depending on conditions in the oil and gas sector in Texas and the translation effect. So the Australian dollar the U.S. dollar we estimate the consolidated revenues for.
Fiscal 21 will be in the range of 305 to 325 million.
On a consolidated adjusted EBITDA is expected to be 17% to 22% lower in fiscal 21 from fiscal 20.
This outlook does not take into account the impact of any acquisitions that may occur during fiscal year 2021.
This now concludes our prepared comments and I would like to turn the call back to the operator for the question answer session.
Thank you have floors now open for questions.
Ask a question at this time simply press Star then the number one on your telephone keypad.
If at any point your question has been answered and your wish to remove yourself from the Q press the pound key.
Our first question comes from line of Brent Thielman of D.A. Davidson.
Okay.
Okay, great. Thanks, good morning.
Morning, Brent.
Hey, Chuck will be possible to get.
Yeah, I guess the rate change by major product category or geographic territory.
For the fourth quarter.
Yes.
So lets up.
In North America.
So we'll start with the utilization.
Storage containers, 68%. This is average for the quarter.
Office containers.
Close 82%.
Mobile offices, 81%.
Modular units 80%.
In the composite Frac tank, 69%, that's going to be 35%, 35%.
Rates storage containers honored $18.
Gee Fellows $398.
Mobile offices $390.
Modular units $901.
And Frac tank containers eight $456 456.
Got it.
Okay. Thank you for that.
I guess.
A follow up on Lonestar, you managed to keep the business EBITDA positive this quarter, maybe it's been a pretty terrible market.
Do you feel comfortable you can manage the business in or enter around these levels I.
I guess as long as the market is where it is as pricing materially did deteriorate such that that can be more challenging going forward.
Yeah. This is Jody I think.
Our estimate is that we're kind of in the trough things seem to have kind of settle down it and it's definitely our ambition to keep a positive through this.
Through this tough time, so we've taken proactive roles and taking costs out of business and.
Without sacrificing safety and we have we continue to pick up some new customers are competitors kind of.
Fault on safety and things that open some doors up to some new opportunities as well so definitely our goal to stay net positive we feel like we can.
Okay to that end on the guidance for at 21 does that assume sort of a breakeven EBITDA offer for lonestar.
Yes, it does it a little bit above breakeven.
Okay.
Okay and then finally just on on Unpack then.
Holding up reasonably well I guess, which of the segments are sector, you're right you've got the better visibility.
This more generally more active quotation level.
Yeah. It really does vary so the biggest question Mark I think for everybody is the new construction starts right. So.
Visibility to that is a little bit.
The.
The forecast is starting to come up so we're hopeful of those projects that were pushed back you know continue to happen they don't get.
Stalled out or or stop so that's.
That's probably the biggest question Mark on one of the big segments.
Retail seems to be pretty.
Pretty steady I don't think will hit the record year that we had last year, which was an all time high volume on the retail side, but I think it'll be more normalized.
Volume for Us this year.
So I think you know the visibility that right now looks looks looks pretty good all things considered so when you look at our decline year over year really it's the lone star side, the Pac man tank side, a little bit on some of the one off large sales that we feel like will be kind of hard to duplicate but the core rental.
Side is very very steady and strong.
Okay, great. Thanks for that I'll pass it on.
Thank you.
Our next question comes from one of Scott Schneeberger of Oppenheimer.
Thanks, very much on Jodi I've a question for you, but it's going to be I'm going to fall with Trump one for you in that if you. The metrics you provided on the last question. If you can provide how that compared year over year now give me a second and asked Jody journey in impact then.
Very strong quarter, given the environment. It looks like you clearly outperformed the market.
Relative to some peers.
On the revenue line could you just bore in did you have any special maybe koby testing center business that really helps with pricing significantly better maybe we'll hear that when when Chuck shares.
Just just what what drove what Weve clearly outperformance versus the market in this.
It really it throughout the whole code period, not just a quarter. Thanks.
Yeah. So again the leasing revenues are strong we were up 12%.
In our core containerized product for the year. So we're very proud of the hardware. The team has done on the on the core product in regards to the of what happened and what made that result.
Pricing continued to be strong, which is a great sign on or containerized product.
We did have some slowdown on new leases going out.
Through the downturn, our new lease out the door was down the positive flip side of that was.
We had a lot less returns as well so the duration got stretched out.
Through that time period, as well and then.
Last piece of it is we did.
I have quite a bit of business from a code related opportunities. So.
You mentioned a few you know.
Lot of people are doing a lot more curbside pickup those type of thing so our ground level office demand has been very solid through this process. We also got some large sale opportunities for permanent type structures.
For that type of application testing facilities storage around products for the pandemic.
All those type of things kind of offset some of the areas that we're a little bit weaker in because of just general economic.
Slowdown in and also new construction starts so we're pretty fortunate.
With our product to to weather the storm pretty well through all this and we're seeing more more opportunities that that we wouldn't have seen through the pandemic, but again offset by other segments have slowed a bit like new construction start.
Thanks, and if I couldnt before we bring Chuck on how things being in July and August in the Pac Van segment, just curious on down to the level of detail you care to provide how how things have trended. Thanks.
Yes, so I think.
Through the early couple of months of the pandemic, we definitely saw some large drops in new lease activity going out again duration stretched out so it offset most of it.
The good news is I think June and July things kind of flattened out and we had more modest decreases on the new new leases going out.
Comparative so our outlook right now is kind of we hit the bottom and things seem to be more stable going forward and that's great news on on the new lease activity and again. This next quarter's typically our largest because retail and again I don't think we're going to hit the record highs that we hit last year, but I.
I think it wouldn't do it appears to be more normalize this year, which will kind of take that right that's not bad.
Yeah, Yeah. Thanks, I appreciate that and then and then Chuck.
Back to that question. If you have the answer is available and then and then I have another one is well I'm not going to bond pricing in North America, the lease rates comparable period.
Exactly so it was down.
Yeah, No I do so for storage containers.
Quarter of last year.
The rate was $117 and this quarter ticked up a little bit to $118.
Jello's last year was $369.
In this fourth quarter the average is 398.
Mobile offices $336 last year fourth quarter.
$390 this quarter.
Fourth quarter.
Modular units $829 fourth quarter of last year.
Fourth quarter fiscal 2900, $1. So our card products lease rates went up quarter to quarter and you'll see in the K it'll also year to year.
For Frac tank containers $893.
Q4 of last year.
Versus $456 Q4 this year.
Thank you Chuck you have that that comps on utilization as well we view I do.
Storage containers Q4 of last year, 75%.
Q4 of this year it went down to 68%.
I say this year Q4 fiscal 20.
Office containers jello, 83%.
Last fourth quarter.
Fourth quarter this fiscal 2082% so down a tick.
The losses, 87% Q4 of last year.
This court fourth quarter, 81%.
Module units, 84%.
Last year Q4 of fiscal 2080%.
Well utilization down.
Quarter to quarter on our core products rates are up though and then for Frac tanks, 69% Q4 of last year.
35% Q4 this year.
Thanks, Chuck appreciate that one more if I could sneak it in I'm sure the D. The dsos.
Significantly improved in North America went the other way in Asia Pacific Just curious what you saw what was different in the two geography, so driving that that metric. Thanks.
I would I would say that.
In Australia, just culturally a lot of the.
Vendors over there we extended out whereas here, it's not quite the case you would have thought the opposite but actually our.
Team in North America was a very active in collections, particularly oil and gas section. So you know.
Much more aggressive in North America little bit more culture in Asia Pacific, but I mean, it was a.
Significant proven North America, but not not a significant.
Drop from in the Asia Pacific area.
Hi, Thanks, guys researcher turnover.
Hey.
Our next question comes from one upon Gillespie Ameriprise.
Hi.
Under new opportunities for year to liquid containment is there any crossover utilization that you can do it that maybe with water or whatever.
And second.
Do you have an opinion on the will will Scott mobile mini merger.
[noise] attempts so as far as the tanks, we do have tanks used for other things besides.
Oil and gas, but the majority of or tanks are located in the Permian us and some of the Eagle Ford, but mainly in the Permian.
It just comes down to economics.
You are really changing complete strategy, if we didnt think oil and gas is going to come back.
The next year to than than we might take a more aggressive approach moving product around it's not inexpensive to move it out of that area.
We feel like that.
We are positioned well, we feel like there will be less competitors when things come back.
And because of our proactive measures on safety and and.
Selection of customers, we feel like we're going to be in.
In the front of the group.
When oil and gas does come back so.
That's our position now not so you can't change.
Then the merger.
I think.
You saw their results I think they obviously have some opportunity through through synergy.
I think.
Salveson industry.
Overall is probably good.
They are both good competitors and holder pricing well so we don't.
Really see any negative to it at all.
That's about it.
Thanks.
[noise] again, ladies and gentlemen, if you wish to ask a question. Please press star one on your telephone keypad again that a star one to ask a question.
[noise].
And there are no other questions at this time I would like to turn the call back over to Mr. Jody mother.
<unk> CEO for closing remarks. Please go ahead Mr. Miller.
Thank you operator, I would like to thank you for joining the call. Today. We appreciate your continued interest in General Finance Corporation, and hope everybody remains healthy and safe. During these challenging times have a great day and look forward to speaking to you again next quarter.
Thank you.
Thank you ladies and gentlemen, this does conclude today's conference call you may now disconnect.
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