Q1 2021 General Finance Corp Earnings Call
Welcome to General Finance corporations earnings conference call for its first fiscal quarter ending September Thirtyth 2020.
Hosting the call today are Mr., Jody Miller, President and Chief Executive Officer.
And Mr., Charles Bradley, <unk>, Executive Vice President and Chief Financial Officer.
Today's call is being recorded and will be available for replay beginning at 230 P.M. eastern time.
At this time, all participants have been placed in a listen only mode and before will be opened for your questions. Following the presentation.
It is now my pleasure to turn the call over to Mr., Chris Wilson, Vice President General Counsel and Secretary of General 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 indebtedness our.
Bill do you to raise capital or borrow additional funds.
The availability of sufficiently qualified employees should stop our businesses changes in the Australian New Zealand or Canadian dollar relative to the U.S. dollar.
Regulatory changes customer defaults or insolvencies litigation acquisition of businesses that do not perform as we expect or that are difficult for us to integrate or control.
Our ability to secure adequate levels of products to meet customer demand.
Our ability to procure adequate supplies for our manufacturing operations late.
Labor disruptions.
First resolution many contract or other disputes with customers declines in demand for our products and services from key industries, such as the Australian construction and transportation industries, or the U.S. construction and oil and gas industries.
The disruption of operations from catastrophic for extraordinary events, including viral pandemics such as the COVID-19 car buyers or write off of all or part of our goodwill and intangible assets.
These risks and uncertainties could cause actual outcomes or results to differ materially from those described in our forward looking statements.
We believe that the expectations represented by our forward looking statements are reasonable, but there can be no assurance that such expectations will prove to be correct for more details regarding these risks. Please see the risk factors section of our periodic reports filed with the FCC and posted to our website at Www Dot General Finance Dot com. These.
These forward looking statements represent the judgment of the company at this time and General Finance Corporation disclaims any intent 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.
Now I turn the call over to Jody Miller, President and Vice President and Chief Executive Officer Jody. Please go ahead.
Thank you Chris Good morning, we appreciate you joining us today for first quarter fiscal year 2021 conference call I will begin with a brief discussion of our operations and our CFO Chuck brand. This will provide a financial overview on 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 provide an update on our company continues to manage through the ongoing global pandemic.
First I want to reiterate the physical health and safety of our employees and our customers range remain our foremost concern.
As a central business our locations remain open operating under flexible work practices, while maintaining the same level of safety and service our customers expect.
I would like to personally thank all of our dedicated employees for continuing to do what it takes to support each other our customers and our communities during these challenging times.
Now turning to an overview of our result.
We expected the COVID-19 pandemic would be challenging and negatively impact our first quarter results. Despite these challenges our results exceeded our expectations.
Our North American leasing operations at Pac Van remain solid with a 5% increase in rental revenue of our core non liquid containment products and total revenues down only 2% year over year.
Overall leasing demand was mixed with year over year growth in some sectors that modest declines and others.
From a product perspective or ground level offices continue to see the highest demand across all core product offering experiencing year over year increases in both pricing and volume.
We expect our product sales business held up relatively well in the corner in the quarter declining less than 1% year over year.
Some segments to soften somewhat as expected with the uncertain economic environment, but was offset by some COVID-19 related sales.
Going forward, we will continue to monitor these trends that impact our business such as nonresidential construction starts and special events were open many of these projects I've answered delayed and not cancelled entirely.
Our liquid containment business, which primarily consists of lone star is experiencing reduced customer activity with continued uncertainty in the oil and gas market aggravated by the COVID-19 pandemic.
During the quarter, our customers' production levels remain low and we experienced continued pressure in both utilization and pricing.
We have implemented measures to control cost without sacrificing our service levels for safety.
As I mentioned before this strategy served us well in the last downturn as we emerge from that period with more business from existing and new customers.
We are hopeful that conditions won't prove we're prepared for these ongoing challenges in this sector and expect to be well positioned to serve or primarily blue chip customers when the market normalizes.
Our North American manufacturing operations posted lower results for the quarter as expected due to the reduced sales of liquids came containment tanks, especially things off.
Offset somewhat by ongoing demand for yellow modifications, primarily from Pac bins leasing operations.
Now turning to the Asia Pacific region.
The year over year growth in revenues and adjusted EBITDA off from Royal Wolf was driven by a number of factors.
First the economies in both Australia, and New Zealand haven't hit as hard by the end of it gives the U.S. second to say over modestly higher year over year, mainly due to a follow on business related sale and the utility sector.
Additionally role is virtually no exposure to the energy sector and finally, the Australian dollar strengthened against the U.S. dollar between periods, providing a lift to reported revenue and adjusted EBITDA.
Our Royal Wolfs team remains focused on helping its customers get through the disruption caused by the pandemic and returning the business as normal.
The Australian and New Zealand economies appear to be recovering as new covert cases in both countries are very low and expected to remain that way in the near term.
In General Asia economies, particularly in China are experiencing or new growth across the region with shop should also benefit both Australia, New Zealand economies going forward.
To conclude our fiscal year 2021 will likely remain challenging because of the ongoing disruption caused by COVID-19, particularly in the oil and gas sector.
We continue to monitor the situation across all of our business units and remain focused on preserving our liquidity and minimizing the impact on our profitability, while ensuring the safety of our employees.
While we are unable to predict what the ultimate severity or duration of the economic fallout caused by the pandemic. Our experienced management team has successfully navigated through challenging times in the past.
Our resilient business model anchored by Containerized fleet with long economic lives and very low maintenance requirements provide us with the ability to enhance free cash flow and reduce debt, which we did during the first quarter.
We will continue to manage our Capex and acquisition investments prudently, where we have the high degree of discretion, when making capital allocation decisions.
We're also fortunate to be in the strongest financial and liquidity position, we've ever had in the company and well positioned to persevere and eventually emerge from this crisis.
I'll now turn the call over to Chuck ran us for his financial review and our outlook for the remainder of the fiscal year.
Thank you Jody.
We'll be filing our quarterly report on form 10-Q, shortly which time. This document will be available on both the Fccs Edgar filing system.
And on our website and I 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 first quarter financial results total revenues were 82.4 billion in the first quarter fiscal year 2021, compared to 89.8 million for the first quarter of the prior year.
Leasing revenues were 52.3 million down from 58.9 million and comprised 64% of total non manufacturing revenues for the quarter.
Down from 67% in the prior year.
Leasing revenues, excluding the oil and gas sector increased by approximately 1% in North America and by 3% in the Asia Pacific area.
Non manufacturing sales revenues were 28.8 million in the quarter down from 29.7 million in the prior year first quarter.
In our North American leasing operations total revenues for the first quarter totaled 53.6 million a decrease of approximately 12%.
Leasing revenues decreased by 16% to them was primarily new oil and gas sector SAP substantially all to be to lone star as well as the services sector. This decrease this decrease was partially offset by increases in the construction and industrial sectors.
Revenues were comparable between the periods.
In our Asia Pacific leasing operations revenues for the first quarter totaled 28.5 million an increase of pipe, 5% from the prior year.
The Australian dollar strengthened against the U.S. only between the periods on a local currency basis total revenues increased by approximately 1%.
Slight increase in revenues in local dollars was driven primarily by increased revenues in the utility sector.
It was partially offset by decreases in the government education and industrial sectors.
The Asia Pacific leasing revenues were down slightly in local currency due to a modest decline in average monthly units on lease somewhat offset by higher average lease rates.
Revenues at our North American manufacturing operations for the first quarter were 1.6 million included intercompany sales of 1.3 million from products sold to our North American leasing operations. This.
This compares to 3.5 million of total sales, including intercompany sales of 1.3 million during the first quarter of the prior year.
Our manufacturing operations experienced lower demand from external customers for liquid containment in specialty tanks.
Consolidated adjusted EBITDA was $21.1 million in the first quarter of 2021 compared.
Compared to $25.1 million in the prior year's quarter and adjusted EBITDA margin as a percentage of total revenues was 26% in the quarter down from 28% in the first quarter of 2020.
In North America, adjusted EBITDA for our leasing operations was approximately 15 million for the first quarter compared to 19.4 million for the year ago quarter, a decrease of 23% adjusted EBITDA taxes decreased by 8% to 14.7 million in adjusted EBITDA at Lone Star decreased significantly to 284000 from 3.5.
Late in the year ago quarter.
For our manufacturing operations on a standalone basis, adjusted EBITDA was a slight loss of 106000 for the quarter compared to last quarters first quarter adjusted EBITDA of 286000.
Asia Pacific Pacifics adjusted EBITDA for the quarter was $7.3 million compared to 6.8 million into your little quarter, an increase of approximately 8% on a local currency basis adjusted EBITDA increased by 3%.
Interest expense for the first quarter of 2021 was 5.7 million down from 7.3 million last year.
The significant increase decrease of 22% was comprised of a reduction of 1.3 million North America and approximately 300000 in the Asia Pacific.
North America, the lower interest rate would do double both lower average borrowings and lower weighted average interest rate of 4.6% versus 6.1% in the year ago period.
In the Asia Pacific area, the lower interest expense was primarily due to lower average borrowings and a lower weighted average interest rate of 7.2% versus 7.9 in the prior year period.
This was partially offset by stronger Australian dollar between the periods.
Net income attributable to common shareholders in the first quarter was 3.2 million or 10 cents per diluted share compared to 5 million or 16 cents per diluted share in the year ago quarter include.
Included in these results for both periods was the effect of the changes in the valuation Standalone bifurcate derivatives and 922000 for the dividends paid on our preferred stock.
During the first quarter the company generated cash from operating activities of 10.7 million as compared to 13.6 million for the year ago quarter.
Now turning to our balance sheet at September Thirtyth. The company had a net leverage of 3.8 times for the trailing 12 months, which compares with 3.7 times net leverage at June Thirtyth, and our better than expected first quarter results and our management of working capital and fleet investment generated free cash flow and debt reduction during the quarter.
In addition, we were very pleased with the recent successful completion of a $60 million public offering of 7.875% senior unsecured notes that mature on October 31st 2025.
In connection with the offering we have granted the underwriters.
Option for 30 days to purchase up to an additional $9 million to cover over allotments. If any the net proceeds from the offering will be used to redeem a portion of our outstanding 8.125% unsecured senior notes that mature on July 31st 2021.
We continue to evaluate alternatives to refinance the remaining 8.125% senior notes with the goal of further lowering our overall cost of financing.
Over the past couple of years, we have reduced our cost of capital and enhance our financing flexibility and as a result, our financial position liquidity are stronger than ever as Jodi said. Furthermore, we expect to continue to generate free cash flow for the full fiscal year.
Turning to our company wide outlook for the remainder of fiscal year 2021.
It is difficult to predict the extent to which our results of operations liquidity and financial condition wall to be impacted by the COVID-19 pandemic in fiscal year 2021.
However, based on our first quarter first quarter results and depending on conditions in the oil and gas sector in Texas and the translation effect of the Australian dollar to the U.S. dollar.
We now estimate that consolidated revenues for fiscal 2021.
We'll be in the range of 310 million to 325 million.
Consolidated adjusted EBITDA is expected to be 15% to 20% lower in fiscal were 21 than fiscal year 2020. This.
This improved 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 and answer session.
At this time, if you'd like to ask an audio question you may do so by pressing star and the number one on your telephone keypad well pause for just a moment.
The first question will come from the line of Brent domain with D.A. Davidson.
Great. Thank you good morning.
Morning.
[laughter] Jourdier Chuck just wondering if you could walk through some of the moving pieces within Pakistan and.
Modest year on year pressure within EBITDA.
Period, just be curious there.
Yes, so a Pac van obviously is a performing exceptionally well if you look at just the containerized fleet alone you know were up 6% year over year. You know this quarter looks very solid retail season is strong our core products within a.
You know the containerized fleet a record highs as well so we feel very very fortunate and pleased with how things are trending on the pack. The inside obviously the tank side is area, which isn't very large with their division, but the tank side is where we're still struggling and.
You until energy kind of bounces back.
Okay got it and then positive trends are one trend you're seeing within the back then piece of the business I think you talked about some softness in construction and services sectors are you seeing any.
Possible aggression point, there yeah to be honest, it's really a really been offset by you know commercial retail and some other areas. So.
I think a part of that demand is a covert related either people need extra storage space or temporary off.
Ah testing facilities those type of things that has really offset the declines that we had and the construction side.
We're also extremely pleased with our rates our rates have held up very nicely getting nice increases, though you know the ground levels being the highest that but really across the board doing doing well on on the rate trends as well so.
I feel very fortunate.
Yeah, basically all of our own all the rights so lease rates on our own products of.
Have been crease, obviously with the exception of the liquid containment things.
Okay, that's great and then on on lung still are you still.
I'm slightly above.
The dark here is that does that go to your expectation for that business.
In terms of guidance for the year that you can.
Similar just about cash breakeven.
We're open for better than that to be honest you know, it's a little uncertain still but there seems to be a little bit more chatter a on the completion side.
I don't know that drilling is going to pick up a lot, but a again drilling is not a huge part of our portfolio, we really concentrate on the fracking completion and production side. So we're hoping that some of that activity does pick up or.
Going into the first calendar quarter, which is our next fiscal quarter. So we're still optimistic there will be a little bit more activity, but it really is unknown at this point, but you know workforce, we took measures to cut costs and we're in good position to weather the storm.
Okay. Thank you Greg it up pass it on.
Thank you next question will come from the line of Scott and I go with Oppenheimer.
Hi, Thank you very much good morning, guys and on and on tax season, just curious so what you're seeing the ground level offices is demand still as strong as it had been and it's been stalled out with any commentary you have on with regard to your mature assets and just just business.
Environment will actually materialize.
Yeah. So so again you know containerized fleet is definitely that's the strong point with a you know almost 6% organic growth year over year, and again record setting numbers of units on rent or the mobile and modular has been very solid stable again really happy with the rate increases.
Is that we've got on the mobile modular side year over year and quarter over quarter.
And demand seems to be pretty stable I think the the construction start up.
Business decline has been offset by you know cobot related and other areas where are the units have been utilized in areas that maybe they work in.
The past, but right now we just keep you know looking at it very optimistically that we've made it this far and doing so well in the in the core business that we think that you know the general market is going to continue again, we've got record high number of units on rent.
Oh.
A very resilient model for sure.
Next in specifically on the ground level offices are you are you getting a bad the average pricing there versus the other assets and how does that has that demand environment.
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Holding up.
Yeah, It's a again, it's our highest demand product a definitely a really nice you know pricing increases year over year and we continue to you know that that's where really any capital growth that we're spending right now is going into in the G. yellows and again I think where we've been.
Maybe less units going out to two subcontractors and things on on new construction starts has been more than offset by new applications and new facility in anywhere anybody needs a temporary offices or you know climate control that type of thing you know these things can be set up so quickly and conveniently.
That is just a great product and a very high demand. So we're optimistic that a that product is just gonna kids continue on the same trends as has been in and you know looks very optimistic.
And so you know you just speak to kind of October November trends still intact and with regard to what you're seeing with seasonal rentals and then excluding seasonal rentals from the conversation how it how it's trended in the second fiscal second quarter.
Versus what she's on her in person.
Yeah, No again, we're very optimistic retail looks to be around.
Around record highs of last year, and then you throw on top of that our core has stayed very very strong and growing so.
As I mentioned earlier, we were at a record number of units on rent. Currently so you know one may not have been that optimistic a few months ago I just kind of goes back to the resiliency of our product and you know at low cost solution for so many areas, whether it be storage needs or temporary office.
Our facility so.
We're we're optimistic in the current quarter retail is going to be strong our organic core fleet is strong.
And really the energy or oil and gas sides only areas of weakness right now and that seems to be stable and we're optimistic it will come back.
And Ken with regard to the full year guidance increased Adam and good to see what are what are your main concern in the areas of of salads are listed in the in the press release, but if you could delve a little deeper into what would make you most concerned at the low end.
And Conversely, what do you think would be triggers that could put you out of a bump on their phones.
Yes. So again you know construction starts are probably the biggest question Mark it seems like things have stabilized there. We've weathered a you know this whole summer going into fall with a lot less starts so we're very optimistic about.
That our products are being used in other areas to kinda offset but I would say that's probably the number one question Mark what next year or calendar year brings our next couple of quarters physical so construction starts will be something we'll watch very closely.
Vince this is not a huge part of our business, but you know win win all that business comes back that's a that's a big plus so again, we feel very fortunate that you know there's virtually been hard hardly any event business last six months and to have our numbers, where we are and again record number of units on rent, we feel very very fortunate.
You know looking ahead and then the last thing really are the only the other big question. Mark is just what oil and gas is going to do and and a house and it comes back. So I think those are really the big ticket items everything else seems to be very stable and moving the right direction and again, we're very fortunate to have the diversity of costs.
Customers that we have and and you know all the different applications of our products.
Thank you and last one for me just curious.
Curious your prioritization of a a debt reduction versus perhaps and the.
Hey, or other uses of capital I'm, just looking out over the fiscal year.
Scott This is Chuck So you know our.
Debt reduction is really.
Secondly, a function of how we look at investment opportunities, whether it's acquisition or fleet as it stands right now you see in this at this particular situation you know we're going to have less investment in fleet.
As a matter of fact, you'll see we're gonna be filing our Q leave today, you know, we actually had a negative capex. So that would obviously entailed the free cash flow would be used to debt reduction so debt reduction is a priority.
If we do not see opportunity in areas or have any types of opportunities and acquisitions.
Thanks Appreciate that chart I'm sure I'll turn it back over.
Thanks.
Our next question will come from the line of Louis Hernandez <unk> private investor.
Yes, Hello, and good morning, everyone.
Good morning, good morning.
Hey, Mike just following up on on the capital allocation truck count.
Oh like Oh.
How's the environment on M&A or how.
The man being are you guys on one.
Either do M&A or for debt reduction like.
I guess the space.
It's little talk so.
I just wanted to to see to see where your thresholds were and how are you managing that.
Yeah. Thanks, Lisa this.
This is Jody I think a you know we always look at it cautiously.
Fortunate for us as I mentioned earlier in the remarks were at a record high as far as liquidity.
You know if there is a M&A activity out there that fits our portfolio very well and we feel like is a great investment. We'll obviously look at that we've got plenty of availability and capital, but at the same time, we're very cautious and prudent with our with our investment so as Chuck said last quarter.
Ah you know we had negative capex a you know we we turn into a cash cow as you know when we're not investing going forward so far.
From a balance sheet standpoint, we're in great shape, we will continue to look at M&A opportunities if they come to us and if it's the right fit right investment obviously, we look at that but you know we're conservative in nature.
Now until we get a little bit of an outlook, but again the best part of that as a you know where there were in the best financial and liquidity position, we've ever been as a company so in great shape.
Okay and.
From a capital structure point of view just go did the refinancing all the nodes and Uh huh.
How about the preferreds, what's the kinda like mid term.
In addition on those.
Sure. So Louise this is Chuck so on on the preferred stock or you know the the company in general feels that it's a good a flexible instrument to habits equity with the dividends. It's obviously 40 billion of our.
Total overall.
Capital structure is not particularly significant so as of this point until we're viewing the preferred stock to stay as is.
Like that flexibility, that's not to say that it would not change our view down the road as conditions change, but for right now our first priority was to refinance the senior notes and we're going to end up doing that weve substantially through that I'm already and we have.
Reduced our overall cost of capital so.
At the moment, we're going to focus in on a doing what we need under the current situation look at a huge investments if there are opportunistic.
And if not we will reduce debt.
The forward, starting probably pay engines for a period of time.
Right and then just going back to the free cash flow you said, you're about around 11 million.
For the quarter, then that's a that's the cash flow from operating activities, that's not necessarily the free cash flow [laughter] <unk>.
Oh, yeah, because I see I see that you ought to reduce debt by their own five no.
Since you're saying you had negative capex just.
Yes, one thing we did not have any at all the options and do you want to.
Right right, Okay, and then kind of kinda like more like a forward.
Question in a more well.
Well, what do you think I think is the kind of like next leg of opportunity for growth.
You should be coming out of them.
Current pandemics and all that what a recession.
Where do you guys see it.
Yeah, I mean I I think this is a good example, you know we've had six months of a very challenging economic times, but yet our core containerized product is growing.
You know in setting records. So I think that just again goes back to the resiliency of our product offering.
Containerized fleet as we mentioned for the last several years is our number one priority storage containers NGL lows, we feel like are.
Our you know by far the best investment.
You know mobile modular rates continue to get double digit increases. So I mean again, that's phenomenal and Oh that business is looking better all the time as well. So you know from a priority standpoint, we're going to focus on containerized, we'll continue to add dots to the map to Ana and enhance our NAV.
National account.
Program and and.
To be able to serve our customers we're going to look at you know acquisitions that are we feel like are are the right fit the right investment wouldn't make those if we didnt and and then you know organically is the best return and right now the lows is where we're focused on the organic side of it we need containers will obviously can put those into the fleet.
Pretty quickly.
Gee yellows takes a little bit more time from a manufacturing standpoint, but they're doing quite well and I think that product is going to continue to grow for the years to come just because of the convenience right. You can call. This morning, you need a ground level office, he temporary facilities climate control or storage class.
Haven't controlled.
In many cases, we can deliver it and have it set up the same day, where other products would take a lot longer and permitting and different things. So.
Hello is a great product all the containerized fleets, where we're going to focus on our investment.
Alright, Thanks, a lot.
Questions.
Again to ask an audio question you may do so by pressing star and the number one on your telephone keypad.
[laughter].
And with no further audio questions I'll hand, the conference back to generally.
Thank you operator I'd 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 we look forward to speaking to you again or second quarter earnings conference call. Thank you.
This does conclude today's conference call. We thank you for your participation and ask that you. Please disconnect your lines.
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