Q2 2021 General Finance Corp Earnings Call
Welcome to General Finance corporations earnings conference call for it and stuff.
Quarter ended December 31, 'twenty and 'twenty.
Hosting the call today are Mr. Jody Miller, President and Chief Executive Officer, and Mr. Charles <unk>.
And our 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.
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.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If your question has been answered and you wish to remove yourself from the queue press the pound key we ask that while posing your question that you. Please pickup your handset to allow optimal sound quality and.
And it's 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 and interest rates for our variable interest rate indebtedness.
Our ability to raise capital or borrow additional funds.
The availability of sufficiently qualified employees to staff our businesses.
And the Australian New Zealand or Canadian dollar relative to the U S dollar regulatory changes customer defaults or Insolvencies Litigation Act.
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.
Labor disruptions.
And adverse resolution of any 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 or extraordinary events, including viral pandemics such as the COVID-19 coronavirus.
Or have a write off of all or a part of our goodwill and intangible assets.
These risks and uncertainties could cause actual outcomes and 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 SEC and Poe.
Told website at 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 intent or obligation to update forward looking statements.
And this conference call. We will also discuss certain non U S. GAAP financial measures such as suggested the better.
Reconciliation of how we define and arrive at adjusted EBITDA is and our earnings release and will be included in our quarterly report on form 10-Q.
And now I'll 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 our second quarter 2021 conference call.
I will begin with a brief discussion of our operations then our CFO Chuck <unk> 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.
We are very pleased with our financial performance and our second quarter. Despite the ongoing challenges created by the pandemic.
Once again, the results well exceeded our expectations.
Our North American leasing operations at Pac Van led the way with a 9% increase and rental revenues from our core non liquid containment products.
Containerized products led the way with a 10, 9% growth and total revenues were up 5% year over year.
Overall leasing revenues were up 3% at Pac van including tanks with year over year growth and some sectors and modest declines and others.
Our ground level offices continue to see the highest demand across our core product offering experiencing year over year increases and both pricing and volume.
Sales in North America were up 11% year over year.
Just like last quarter, some segments have shown decline and this uncertain economic environment, but this was more than offset by a number of COVID-19 related sales.
Going forward, we will continue to monitor trends that impact our business such as nonresidential construction starts and special events.
We believe as the economy reopens projects that had been delayed will restart and more public entertainment events will resume.
Our liquid containment business, primarily lonestar experienced reduced customer activity from lower levels of oil production in Texas during the quarter when compared to second quarter last year. However, we did experience modest rebounds, and both pricing and utilization compared to last quarter.
We are still operating under significant lower levels and physical year 2020, but we are cautiously optimistic we will see sequentially improved results from the second quarter.
And the physical years, we have seen better trends as of late.
As I mentioned before we have implemented measures to control cost without sacrificing our service levels, and where safety and are effectively managing through the ongoing challenges in this sector and expect to be well positioned to serve our primarily blue chip customers when the market normalizes.
Our north American manufacturing operations posted lower year over year revenue and the quarter as expected due to reduced sales and liquid containment tanks and specialty tanks offset somewhat by ongoing demand for G. L. O modifications, primarily from Pac vans leasing operations.
Despite the lower revenues adjusted EBITDA EBITDA was a small loss for the quarter and was slightly improved from prior year quarter.
Now turning to the Asia Pacific region.
Adjusted EBITDA was up 5% and Asia Pacific region, while revenues were down 2%.
The Australian dollar continues to strengthen against the U S dollar between periods and providing a lift and reported revenues and adjusted EBITDA.
And local currency revenues were down 9%. However, last year, we booked two large sales and the transportation sector, which were not repeated this year.
Excluding the impact from those two transactions revenues would have been up 7% year over year.
Leasing revenues were down approximately 3% and local currency, mainly due to a revenue decrease and the construction sector is modest improvements in some sectors were offset by slight declines and others.
Our Royal Wolf team remains focused on helping its customers get through any disruption and returning to business as normal.
Both the Australian and New Zealand economies continue to recover as new Covid cases in both countries are very low and expect it to remain that way and the near term.
And general economies across the region are experiencing renewed growth, which should also benefit the Australian and New Zealand economies going forward.
To conclude our resilient business model anchored by containerized fleet with long economic lives and very low maintenance requirements and provide us with the ability to generate free cash flow and reduce debt, which we've done and the first half of physical 2021.
We continue to manage our discretionary capex and acquisition and investments prudently and.
And we are the strongest financial and liquidity position, we've ever been at and the company.
Or a physical year 2021 will likely remain challenging we will continue to monitor the situation across all our business units and are confident and our ability to navigate through this environment.
I'll now turn the call over to Chuck <unk> for his financial review and our outlook for the remainder of the physical year Chuck.
Chuck.
Thank you Jody.
We will be filing our quarterly report on form 10-Q, shortly at which time. This document will be available on both the SEC's Edgar filing system and.
And on our website and.
I encourage investors and interested parties to read it as it contains substantial amount of information about our company.
Some of which we will discuss today.
Turning to our second quarter financial results total revenues were $89 1 million for the second quarter of fiscal year 2021, compared to $92 1 million from the second quarter of the prior year.
<unk> revenues were $58 4 million down from $60 8 million and comprised 66% of total non manufacturing revenues for the quarter down 67%.
From the prior year.
Leasing revenues, excluding the oil and gas sector increased by approximately 5% and North America and by four 4% from the Asia Pacific area non.
Non manufacturing sales revenues were $30 2 million and the quarter up from $29 seven and the prior year.
And our North American leasing operations total revenues for the second quarter totaled $59 4 million a decrease of 2% from the second quarter of fiscal year 2020 and.
Leasing revenues decreased by 7%, primarily and the oil and guest and the oil and gas sector and substantially all attributable to Lone Star. This decrease was partially offset by increases in the commercial construction government and mining sectors.
<unk> revenues increased by 11% between the periods and.
And our Asia Pacific leasing operations total revenues for the second quarter totaled $29 2 million a decrease of 2% from the prior year. The Australian dollar strengthened against the U S dollar between the periods and so on a local currency basis total revenues decreased by approximately 9%.
The decrease in revenues in local dollars was driven primarily by low revenue and the transportation sector and what.
Partially offset by increases in the mining moving and storage consumer and retail sectors. As Jodi mentioned, there were two large sales and transportation sector last year, which werent repeated this year.
Leasing revenues were down approximately 3% and local currency due to a modest decline in average monthly units on lease somewhat offset by higher average lease rates.
Would you use that our North America manufacturing operations for the second quarter were $1 9 million and included and intercompany sales of $1 4 million from products sold to our North American leasing operations.
And this compares to $3 1 million of total sales, including intercompany sales of one from happening during the second quarter of the prior year.
Our manufacturing operations slower demand from external customers for liquid containment spell SKU tanks and other miscellaneous parts.
Consolidated adjusted EBITDA was $26 8 million and the second quarter of 2021 up 2% from the prior year's quarter and adjusted EBIT margin as a percentage of total revenue was 30% and the quarter up from 29% from the second quarter of 2020.
And that EBIT exceeded our expectations for the quarter, mainly driven by significantly better than expected results at Pac van but also due to moderately better than expected results at Royal Wolf and Lone Star.
And North America, adjusted EBIT for our leasing operations was approximately $19 6 million and the second quarter compared to $19 90, and for the year ago quarter, a decrease of approximately 2% and.
Adjusted EBITDA at Pac van increased by 8% to $19 million and adjusted EBIT at Lone Star decreased to 664000 from $2 3 million and a year ago quarter. However, lonestar degenerated sequential increase and adjusted EBIT from the first quarter's $284000 level.
For our manufacturing operations on a standalone basis, adjusted EBITDA was a slight loss of 41000 for the quarter compared to last year's second quarter adjusted EBIT loss of 97000.
Asia Pacific specifics adjusted EBIT for the quarter was $8 3 million compared to $7 9 million and the year ago quarter and increase of 5% on a local currency basis adjusted EBITDA decreased by approximately 2%.
Interest expense for the second quarter of 2021 was $6 7 million down from $6 9 million last year. This decrease was comprised of an increase of 200000, roughly and North American and a point $4 million decrease in the Asia Pacific.
In North America, the weighted average interest rate was five 9% during the second quarter versus five 8% and a year ago period, primarily due to an additional $6 million of interest from having both public issues of senior notes outstanding for a period of time before the redemption of our eight and one eighth notes. In addition, the current year.
Included $8 4 million dollar write off of unamortized financing costs related to the eight 5% notes. However, average borrowings were lower between the periods.
But between the periods.
And the Asia Pacific area of the law interest expense was due to both lower average borrowings and a lower weighted average interest rate of seven 3% versus seven 7% and the prior year period. This was partially offset by a stronger Australian dollar between the periods.
Net income attributable common shareholders in the second quarter was $8 3 million or 27 cents per diluted share compared to $9 5 million or <unk> 30 per diluted share and a year ago quarter included in these results are non cash benefits of $2 6 million and $3 9 million and fiscal years 2021, and 2020, respectively.
The change in valuation of the stand alone bifurcated derivatives. Both periods also include 922000 and for the dividends paid and our preferred stock.
During the first six months of fiscal year 2021, the company generated cash from operating activities of $29 8 million as compared to $37 5 million for the year ago period.
Turning to our balance sheet and at December 31, the company had a net leverage ratio of three eight times for the trailing 12 months.
Consistent consistent with September 30th and comparable with a three seven times net leverage at June 30, and.
Our better than expected results generated free cash flow and debt reduction during the first six months of the fiscal year and we expect to continue generating strong cash free cash flow for the remainder of the fiscal year.
In addition, we successfully completed a $69 million public offering of seven and seven 8% senior unsecured notes that mature on October 31 2025.
Proceeds from the offering combined with the months' drawn on our North American credit facility were used to redeem the entire amount of our 77.4 million $8 eight and one 8% unsecured senior notes that were to mature and July 31 and 2021.
As a result of these transactions combined with our solid second quarter financial results, we have strength in our financial position and reduced our overall cost of capital.
Turning to our company wide outlook for the remainder of fiscal year 2021, given.
Given the ongoing nature of the pandemic it remains difficult to reasonably predict the extent to which our results of operations, we ultimately be impacted.
In fiscal year 2021, however, based on our first half results and depending on conditions and the oil and gas sector, and Texas and the translation effect of the awesome from you.
S dollar we estimate that consolidated revenues for fiscal year 2021.
And in the range of 335 million to $350 million and consolidated adjusted EBIT, there will be 5% to 10% lower in fiscal year 2021, and then from fiscal year 2020.
This improved outlook does not take into account the impact of any acquisitions that may occur during the remainder of fiscal year 2021.
This concludes our prepared comments and I would like to turn the call back to the operator for the question and answer session.
Thank you at this time I would like to remind everyone. If you'd like to ask a question. Please press Star then the number one on your telephone keypad and Youre.
Question has been answered and.
Move yourself from the queue press the pound key our first question comes from the line of Scott Schneeberger of Oppenheimer.
And thank you very much good morning.
I guess it and my first question.
And would be just around the corner really nice performance could you guys discuss a little bit relative to your internal expectations, what drove the outperformance and the quarter.
And specifically, maybe if you could rank the top two or three items that you saw versus your internal expectations.
And then obviously with the thought to guidance and for that increase.
It's the same drivers and undergrad and won't.
Yeah, Thanks, Scott and I'll take the first part of the question and let Chuck jump in but yeah.
And as we mentioned on the call I think Pat band well exceeded our expectations, we had a good quarter.
And really across the board if you look at all the different segments I think the team has done a good job on execution on maybe gaining a little market share no.
Doubt theres, some COVID-19 related business within that and that's offset maybe some of the construction sector.
Sector, and and other areas, but I think just our product being out on the street and people seeing it.
And then again execution I think has been very very good.
Retail was strong.
Kind of similar and revenue numbers as last year, we had a few more units on.
On rent this year, but.
Big retailers did a little better job managing there.
Their rental fleet so revenues were.
Pretty close to last year's numbers, but that's how I'd characterize Pac van Australia had a great quarter, all things considered a they had a couple of large sales and get that got pushed a bit and as I mentioned on the call. We had a couple of really large sales and the transportation sector last year. If you take that out of accounts they were up about.
<unk>, 7% so.
Across the board and our core products really what drove it.
Lone Star is starting to see incur.
And increased activity and as I mentioned, we're cautiously optimistic that that will continue.
But lone star and and southern fab or a small part of it was mainly due to the core push.
And then Scott let me add is with respect to the outlook.
From spring boarding from our second quarter and six months results.
We forecast that into Q3 and Q4.
We're also forecasting some nice sales increase and the Asia Pacific and the next two quarters and then.
Favorable translation effect.
Great Thanks and service.
Powerhouses.
I had two follow ups.
One on Lone Star just curious and you guys are are sound and.
Cautiously optimistic and I understand visibility is not great, but could you share and maybe a level deeper on some some customer interactions I think I heard that but rates were up sequentially.
So.
First quarter to second quarter so.
Yeah.
And that's great to see and interesting to see I would think that that would lag, though that we and so just curious what is what is occurring and what is developing as well as we're moving into this and this quarter. Thanks.
Yes, Scott I mean, I think from our perspective.
And we're coming out of the trough. There's no question, we were in the trough and and.
And if you look at the you know the rig activity again, we don't do a tremendous amount with the rigs himself or more around the production completion, which is the you know the fracking and completion wells and what we're hearing from our customers increases.
And and would already probably be picked up more than they have but some of the permitting and and the federal ground on the Permian out and then new Mexico area.
Had to shift some people. So there is speculation that the whole thing will actually help us because we're right in the heart of the Permian and so does that mean increased activity in the months to come.
Due to some of those changes coming.
Coming up it's hard to say, but I think what we're hearing from our customers right now.
Steady increases as long as things don't change. So we're again cautiously optimistic that we'll continue to see the trends we've seen and the last couple of months.
And then my last one.
And we have multiple part question, but it's.
It's impossible and.
Really nice quarter.
One is here.
Parts to it.
And if youre seeing I D. C. G. L. O's, we're strong is that continuing to accelerate.
And meaning is this something that you think is going to be even stronger.
In the back half and then and this fiscal year, then and the and the first half.
And is that <unk> tied to the COVID-19 related activity youre, seeing and and unemployment related activity Youre seeing is that is that net.
Sales and rental and.
And just curious if there is a meaningful difference because that down and I heard that and there were some sales involved there, whereas I would think it would be more rental type activity.
So I'll cut it off there, but thank you very much.
Yeah. So.
Hello, The first part of the question is we just continue to see that product.
More and more accepted.
<unk> all industry. So yes. There is no question, we have units going out for testing facilities and our vaccine facilities.
There's a lots of different applications related to the pandemic, but I'll also tell you you know normally.
Through this time, we really start to pick up on events right. So when when.
And the economy does start to get back to normal and.
And events happen and that's a big application for the <unk>.
And as well so across the board I think again the product is getting more accepted.
No question, there is a COVID-19 related activity and we continue to get new opportunities every day.
Related to the Covid changes and businesses and and I mentioned on the last call you know from.
And maybe pickups from grocery year product people don't have facilities outside so I think it's going to change the way.
Businesses do business going forward. So we're hoping that that's very sustainable and then our event business. When it comes back would offset any decline.
Decline that we have and including construction to offset any decline we have from Covid return. So we.
We are seeing good steady growth and we don't look for it to change to answer your question on the on the T. L O side very optimistic.
Great. Thanks, and excellent question just a quick follow up on that is the COVID-19 related activity.
And mostly in <unk> or would you say equally and and your other offerings.
And then and then just just curious.
And I assume it's mostly rental but is there a whole level of sales activity bumps.
Yeah. So so yes, I mean, most of the activity is related to globe and I would say, we still have a lot of containers borne out for different storage applications and things related to COVID-19 too, but not to the extent that the G. L. O's.
So that definitely is the strongest product.
Covid related and then to answer your sales question that you mentioned earlier.
It's a unique environment, because containers and a little harder to come by so we've been able to see margin expansion and I think we will continue to see some margin expansion.
And there are certain companies that are doing modifications to the containers for certain application around COVID-19. So we are seeing some sales through those channels, but just our normal sales channel, we're seeing and expanded margins just because there's less units out there for sale and therefore driving up price. So you know the law.
Long term effect of that maybe also a boost and leasing right as people may not invest as much it could boost the leasing business as well, but right now the.
Sales business has been very steady we were cautious about it if you remember a couple of calls ago. We said you know we don't know what this is going to do with the pandemic, but we've seen no drop off.
Great. Thanks, appreciate it and all the questions and.
Thanks Scott.
Our next question comes from the line of Brent Thielman of D. A Davidson.
Thanks, Good morning, Congrats on a great quarter.
Thank you good morning.
Hey, Joe it's been reports out there about shipping container storage is and I just wanted to get your input whether thats, having any implications to the industry right now.
Yeah, I think it will.
Definitely on the sales side its impacting it and I mentioned earlier.
We are seeing less units are available second hand, right now for our for sale.
But again, we've been able to them to offset the volume by by margin, which is nice.
But you know I think we've seen this a couple of times and the path, but not probably to the extent and we have now and new unit prices are really jumping up right now simply supply and demand.
We had units already ordered prior to.
Our lease fleet and great shape, its gave us a chance to.
Clean up anything that's.
Older and and not as desirable so theres been some pros and that process as well, but there is no question that the availability is tighter right now than we've seen in quite some time, but it is driving up margins.
Yep Okay.
The Asia Pacific Lieske and revenue on a local currency basis was under I guess, a little more pressure than we've seen and preceding quarters.
And just be great to get your latest views on the business environment. There the opportunity do you see right now is there any concern.
And we see some further deceleration here just just wanted to get your perspective there.
And I would characterize it as they are we're much more of the government I'm, referring to was much more aggressive with the shutdowns.
So there their business it really across the board you know you can hardly get.
Out of the house for a while and less there.
And there was something.
Groceries and medical that type of thing. So I mean, it was up a little more severe and drastic than it was here and and caused probably further delay for.
And for a time period, but the things are getting back to normal and and released there now.
The whole Asia Pacific region is reporting good good activity and and economic growth. So I think we're pretty optimistic about the Australia, New Zealand market.
Our management team, which is very close to the customers there.
And we're giving a good outlook as well so we feel like that the shutdown really.
Kind of stalled out any kind of growth that we're having just because there wasn't any business going on new construction sites were not getting getting released.
Now that has changed and and we're hoping to see the lifts and the quarters going forward.
Okay.
And back on Pac van.
It seems like one of the uncertainties out there Jody is just what happens or doesn't happen with non res construction and.
Any perspective, you can share from the branch network, and what youre seeing around customer inquiries or orders.
And particularly as we get into the busier spring and summer months for construction there, they're greater hesitation is there more confidence.
Debt to get some read throughs from boots on the ground.
I guess around that that particular market sector.
And so you know you guys get the Abi is as well we watch it very closely we have systems that feed the leads from Dodge and and construction projects.
And we've kind of been waiting to see.
And if theres going to be a.
You know, a big drop and and so far we haven't seen it although.
Through the Covid, we maintain our business level and those sectors very nicely and so now we're hoping that we see some.
Some projects.
Have been delayed kind of restart here in the spring.
But you know I would tell you that that's one sector there that we're watching the closest but right now everything seems okay.
And hopefully with the stimulus and and.
The delays that have happened over the last year, there's some suppressed.
Starts that will happen and I'm sure there'll be some drops and hotels and restaurants and some of those venues but.
We're hopeful that that'll.
That'll be offset by some other.
Construction related projects, but it's definitely a sector, we're watching very closely.
Okay.
And then the day after the 10-Q coming out and I know there'll be more detail there what.
Of all the different asset classes, where are you seeing the most momentum as it Sterling Jello's, where are you seeing and momentum right now on the right side.
We had great rate improvement across the board, but our actual biggest increase came from the mobile modular side were actually double digit.
Rate growth and the mobile modular side and closer to that 5%, where we've been on.
On the container is so rates are still doing extremely well still going up and mobile modular.
And still leads the way.
Got it Okay I'll pass it on and thank you guys.
Thanks Brent.
Once again, if you would like to ask a question. Please press Star then the number one on your telephone keypad again that is star one.
Do you have a follow up question from Brent Thielman of D. A Davidson.
And back.
Thanks for taking my follow up.
Just on the guidance.
And the guidance a clarification on the commentary does the increase from what you were expecting previously contemplated better kind of oil and gas and liquid containment environment or and should we look at this as really an improvement from that.
For the rest of the business.
I think we're looking at improvements and in both areas, our oil and gas as I mentioned on the call. We've seen nice trends the last couple of months with some increased activity. So.
And we're hopeful that.
We will continue to see some uptick there, but our core business is very strong and and.
And so you know I would say, it's really all the above our core business as well as oil and gas, but oil and gas is less than.
Less than 9% of our business. So even if it has an uptick it doesn't have as much impact, but our core business. We feel like it's just going to continue to be strong.
Excellent.
Yep.
Once again, if you would like to ask a question press star one.
Our next question comes from Luis Hernandez.
Hello, everyone and good morning.
Good morning, and Luis.
Alright.
And so you've got a question on the and the guidance, we're guiding for around 90 million per day.
Fiscal year 'twenty one.
Around 90.
And your current and near term quarterly was 20, almost 27 and the six months was like 48. So are you expecting the next two quarters to be like lower much lower.
Don't expect to be much low or no.
But we are expecting it to be little lower yes.
And Luis our biggest.
This quarter's second quarter physical.
Retail season, typically the winter months, which is the quarter, where and now we typically have.
Some drop off and then build back up and the spring.
And the Big reason for why it would be lower as primarily with Lone star gas I mean Q3 of last year, our Lone Star had adjusted EBIT of $2 3 million, we're not forecasting anything near that.
Right.
Okay.
And then the other thing do you expect Hum.
For the full year I mean.
Do you expect working capital to produce cash and consume cash.
Well at least working capital is always a you know it goes back and forth, but I would say general I would expect it to produce cash.
Right Okay.
Right.
Alright, and I guess the chips from me thanks.
Thanks Luis.
That was our final question and I will now return the call to Jody Miller for any closing comments.
Thank you operator.
I would like to thank you for joining our call today. We appreciate you and your continued interest and General Finance Corporation and hope everybody remains healthy and safe have a great day, and we look forward to speaking to you again next quarter. Thank you.
Thank you for participating and the General Finance corporations earnings Conference call you may now disconnect.
And.
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