General Finance Corporation
Q4 2020 Earnings Call Transcript
Published:
- Operator:
- Welcome to General Finance Corporation's Earnings Conference Call for its Fourth Quarter and Fiscal Year ended June 30, 2020. Hosting the call today are Mr. Jody Miller, President and Chief Executive Officer; and Charles Barrantes, Executive Vice President and Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 2
- Chris 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 approaches, increases in 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, 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, labor disruptions, 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 a write-off of all or a 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 SEC and posted to our website at www.generalfinance.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. In this conference call, we will 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.
- Jody Miller:
- Thank you, Chris. Good morning and we appreciate you joining us today for our fourth quarter and fiscal year 2020 conference call. I will begin with a brief discussion of our operations. Then our CFO, Chuck Barrantes will provide a financial overview and our outlook for the current 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 how our company is managing through this ongoing global pandemic. First, I would like to say the physical health and safety of our employees are foremost concern. And I want to 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 an essential business and therefore our locations remained open across all of our venues operating under flexible work practices, while maintaining the same level of safety and service. While the economic fallout from the pandemic has been widespread has impacted 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 is improved in a number of sectors, but also slowed in 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 Lone Star continues to face adverse conditions. The lack of demand and oversupply driven by the pandemic has severely disrupted the entire oil and gas sector. Even though oil prices have recently rebounded from earlier lows, our customer production levels remain low and we've experienced pressure on both utilization and pricing. We've implemented measures to control our costs without sacrificing our service or safety. As I mentioned on our last call, the strategy service well in the last downturn as we emerged from that created with more business from existing and new customers. We're weathering this crisis and expect to be well-positioned to serve our primarily blue chip customers when the oil market normalizes. On the manufacturing side our Southern Frac business has remained fairly active during this period, as we continue to see orders for GLO modifications, both for traditional uses as well as COVID-19 related applications. In summary, while we're unable to predict the ultimate severity or duration the economic fallout caused by the pandemic, our experienced management team have 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 requirements provides us with the ability to enhance 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 as the strongest liquidity we've ever had as a company and a wealth position to persevere through this crisis. Now turning to a brief overview of our results. Our fourth quarter full year result were influenced by many of the same trends we have been experiencing over the past several quarters. Our core North American leasing operation, again, generated higher revenues and adjusted EBITDA for the fiscal year 2020 due to this diversified customer base and expanding geographic presence. Pac-Van has increased nearly across all sectors, generating an 8% increase in leasing revenues and 11% increase in adjusted EBITDA. This marks the ninth consecutive year Pac-Van is delivered to annual improvement in both revenue and adjusted EBITDA, which has grown at a compounded annual rate of 16% and 22%, respectively. In addition, leasing revenues in our core container business and GLO products increased 12% in the fiscal 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, 64 today now serving over half the top 100 MSAs in the U.S. Along with all the growth that 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-Van's footprint throughout North America, a geographically expanding our portable storage in GLO business. During the year we completed one acquisition and enter two new markets through Greenfield locations. Offsetting the stronger of Pac-Van was continued softness in the liquid containment business at Lone Star, which recorded lower results for the quarter and the year. As I mentioned earlier, we were 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 and the year, as they experienced reduced sales in liquid containment tanks and specialty tanks offset somewhat by increase in GLO modifications and sales of other specialty products. Now turning to the Asia-Pacific region. Our full year full year results of the Asia-Pacific region were higher in local currency, but 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 and has grown on average 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. However, product sales continue to be an important contributor to the overall performance of the company and will vary year-to-year depending on the timing of large customized projects. Our Royal Wolf team remains focused on helping its customers get through the disruption caused by the pandemic, which may take somewhat longer than originally expected in Australia due to the recent resurgence of cases in two the largest states, New South Wales and Victoria. New Zealand markets are also expected to return to a more normalized condition in the near future, despite a new cluster of cases in the most populous city of Auckland. To conclude, our fourth quarter and full year performance was somewhat better than our expectations, but not without its challenges. Our full year 2021 will likely even be more challenging because of the ongoing disruption caused by the COVID-19, particularly in the oil and gas sector. We continue to monitor this situation across all of our business units and remain focused on preserving the liquidity and minimizing the impact on our profitability while sharing the safety of our employees. I'll now turn the call over to Chuck Barrantes for a financial review and our outlook for next fiscal year.
- Charles Barrantes:
- Thank you, Jody. We'll be filing our annual report on Form 10-K shortly, at which time this document will be available on both the SEC's EDGAR filing system and 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. Turning to our fourth quarter financial results. Our total revenues were $84.5 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 and comprised 60% of total non-manufacturing revenues for the quarter down from 63% in the prior year. Leasing revenues in our core non-liquid containment products increased by 6% in North America and 4% in local currency in the Asia-Pacific, driven primarily by strong GLO demand and improved lease rates across both of our geographic venues. Non-manufacturing sales were $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 totaled $55.3 million, a decrease of approximately 11%. Leasing revenues decreased by 19% and the decline was primarily in the oil and gas sector substantially all attributable to Lone Star and was partially offset by increases across the majority of our sectors, particularly construction. Sales increased by 10%, driven by increases in the retail, commercial, industrial and services sectors, while being partially offset by a decrease in the mining sector. Sales in our North American manufacturing operations for the fourth quarter were $2.3 million and included intercompany sales of $1.3 million from product sold to our North American leasing operations. This compares to $4.2 million of total sales, including intercompany sales of $1.4 million 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 $28.2 million, a decrease of approximately 11% from the prior year. However, on a local currency basis, total revenue decreased by only 5%. The decline in revenues in local dollars is primarily due to declines in the education, industrial and consumer sectors, largely offset by increases in utilities and transportation sectors. In the fourth quarter of 2020, the utility sector included one large sale for AUD5.6 million and the transportation sector had one large sales AUD1.7 million. Leasing revenue decreased 2% on a year-over-year basis, and as I mentioned previously increased by 5% on a local currency basis, driven primarily by increase in government, construction, consumer and healthcare sectors, and partially offset by decreases in the education, special events and industrial sectors. Royal Wolf in local currency has experienced year-over-year quarterly increases in leasing revenue for 15 of the last 16 quarters. Consolidated adjusted EBITDA was $22.7 million in the fourth quarter of 2020 compared to $26.1 million in the prior year's 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 $15.5 million in the fourth quarter compared to $19 million for a year ago, a decrease of 18%. Our adjusted EBITDA from Pac-Van increased by 3% to $15.2 million in the fourth quarter, although was more than offset by adjusted EBITDA at Lone Star decreasing to approximately $300,000 from $4.3 million in the year ago quarter. For our manufacturing operations on a standalone basis, adjusted EBITDA was $223,000 for the quarter compared to last year's fourth quarter adjusted EBITDA of $634,000. Asian-Pacific's adjusted EBITDA for the quarter was $8.7 million compared to $8.8 million in the year ago quarter, a slight decrease of approximately 2% in U.S. dollars, but on a local currency basis, adjusted EBITDA increase by 4%. Interest expense for the fourth quarter of 2020 was $6.1 million, down from $7.6 million last year. The decrease is comprised of a reduction of $1.3 million in North America and $200,000 in the Asia-Pacific. In North America, the lower interest was due to both lower average borrowings and lower weighted average interest rate of 4.8% versus 6.2% in the year ago period. In the Asia-Pacific area, 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 shareholders in the fourth quarter was approximately $700,000 or $0.02 per diluted share compared to net income attributable to common shareholders of $4.3 million or $0.14 per diluted share in the year ago quarter. Included in these results was a $14.2 million non-cash goodwill impairment charge related to Lone Star and a $1 million non-cash benefit for the change in valuation of standalone bifurcated derivatives. Included in the fourth quarter of last fiscal year was a $1.7 million non-cash charge for the change in valuation of standalone bifurcated derivatives. Both periods also include approximately $900,000 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 the result of improved profitability and working capital management. Turning to our balance sheet. At June 30, the company had a net leverage ratio of 3.7 times for the fiscal year, which was consistent with June 30 of last year. However, our net debt level dropped from $411.1 million at the beginning of last year -- or beginning of this year to $379.8 million at year-end as we focused on generating cash flow and maintaining ample liquidity. We are currently evaluating various financing alternatives to refinance our 8.125% Senior Notes due July 2021, with the goal of extending our debt maturities and lowering our overall cost of financing. Our financial position and liquidity are strong, and we expect to continue to generate free cash flow in fiscal year 2021. Turning to our companywide outlook for fiscal year 2021. While we were closely monitoring the situation, the impact of COVID-19 -- of the COVID-19 pandemic is fluid continues to evolve, and therefore it's difficult to predict the full extent to which our results of operations, liquidity and financial position will be impacted in fiscal year 2021. However, given our current outlook 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 estimate the consolidated revenues for fiscal 2021 will be in the range of $305 million to $325 million. And the consolidated adjusted EBITDA is expected to be 17% to 22% lower in fiscal year 2021 from fiscal 2020. 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-and-answer session.
- Operator:
- Thank you. The floor is now open for questions. [Operator Instructions] Our first question comes from line of Brent Thielman of D. A. Davidson.
- Brent Thielman:
- Hey, great. Thanks. Good morning.
- Jody Miller:
- Good morning, Brent.
- Brent Thielman:
- Hey, Chuck, would it be possible to get, what, I guess the rate change by major product category or geographic territory?
- Charles Barrantes:
- For the fourth quarter?
- Brent Thielman:
- Yes.
- Brent Thielman:
- Yeah. So, let's -- in North America -- so we'll start with utilization, storage containers 68%. This is average for the quarter. Office containers GLO 82%, mobile offices 81%, modular units 80% and the composite frac tank 69% -- excuse me -- 35%. Rates; storage containers $118, GLOs $398, mobile offices $390, modular units $901, and frac tank containers $456, 4, 5, 6.
- Brent Thielman:
- Got it. Okay. Thank you for that. I guess a follow-up on Lone Star, you manage to keep that business EBITDA positive this quarter. It's been a pretty terrible market. Do you feel comfortable you can manage the business in and around these levels, I guess, as long as the market is where it is, it's pricey materially deteriorate that could be more challenging going forward?
- Jody Miller:
- Brent, this is Jody. I think, our estimate is that we're kind of in the trough, things seem to kind of settle down and it's definitely our ambition to keep it positive through this tough time. So, we've taken proactive roles and taking costs out of the business and without sacrificing safety. And we have -- we continue to pick up some new customers or competitors kind of follow-up on safety and things that opened some doors up to some new opportunities as well. So, definitely our goal to stay net positive, we feel like we can.
- Brent Thielman:
- Okay. To that end on the guidance for F 2021, does that assume sort of a breakeven EBITDA for Lone Star?
- Charles Barrantes:
- Yes, it does. It's a little bit above breakeven.
- Brent Thielman:
- Okay. And then finally, just on Pac-Van, things reasonably well, I guess. Which of the segments or sectors you feel like you've got the best visibility and just more -- generally more active quotation level?
- Jody Miller:
- Yeah. It really does vary. So, the biggest question mark, I think, for everybody is the new construction starts, right? So, the visibility that add is a little bit fuzzy dodge, the forecast, starting to come up. So, we're hopeful a lot of those projects that we're going to push back continue to happen. They don't get stalled out or a stop. So, that's probably the biggest question mark on one of the big segments. Retail seems to be pretty steady. I don't think we'll 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, the visibility that right now 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-Van pink side and 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.
- Brent Thielman:
- Okay. Great. Thanks for that. I'll pass it on.
- Jody Miller:
- Thank you.
- Operator:
- Our next question comes from line of Scott Schneeberger of Oppenheimer.
- Scott Schneeberger:
- Thanks very much. Jody, I have a question for you, but it's going to be -- I'm going to fall with Chuck one for you, and that if you -- the metrics she provided on the last question, if you could provide how that compared year-over-year. Now give me a second and ask Jody. Jody, in Pac-Van 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 COVID testing center business that really helped with pricing significantly better? Maybe we'll hear that one when Chuck shares. Just what drove -- what was clearly outperformance versus the market in this -- really it's throughout the whole COVID period, not just the quarter. Thanks.
- Jody Miller:
- 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 hard work the team has done on the core product. In regards to what happened and what made that result, our pricing continue to be strong, which is a great sign on our 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, the last piece of it is, is we did had quite a bit of business from a COVID related opportunities. So, to mention a few, a lot of people are doing a lot more curbside pickup, those types of things. So, our ground level office demand has been very solid through this process. We also got some large sale opportunities for a permanent type structure for that type of application, testing facilities, storage around products for the pandemic, all those types of things kind of offset some of the areas that we're a little bit weaker in because of just general economic slowdown and also new construction starts. So, we were pretty fortunate with our product to weather the storm pretty well through all this. And we're seeing more opportunities that we wouldn't have seen through the pandemic, but again, offset by other segments that have slowed a bit like new construction starts.
- Scott Schneeberger:
- Thanks. And if I could before we bring Chuck on, how things been in July and August in the Pac-Van segment, just curious on to the level of detail you care to provide kind of how things have turned. Thanks.
- Jody Miller:
- Yeah. So, I think, through the early -- couple of months for 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 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 the new lease activity. And again, this next quarter is typically our largest because of retail. And again, I don't think we're going to hit the record highs that we hit last year, but I think it would do -- it appears to be more normalized this year, which we'll kind of take that, right? That's not bad.
- Scott Schneeberger:
- Yeah. Thanks. And I appreciate that. And then Chuck, back to that question, if you have the answers available and then I have another one as well.
- Charles Barrantes:
- So, you're talking about pricing in North America the lease rates, comparable periods?
- Scott Schneeberger:
- Yeah. Exactly.
- Charles Barrantes:
- Yeah. No. No. I do. So, for storage containers, fourth quarter of last year the rate was $117. And this quarter take up a little bit to $118. GLOs 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 of fiscal 2020 $901. So, our core 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 of this year.
- Scott Schneeberger:
- Thank you. Chuck, do you have the accounts on utilization as well?
- Charles Barrantes:
- I do. I do. Storage containers Q4 of last year 75%, Q4 of this year it went down to 68% and I say this should Q4 fiscal 2020. Office container GLO 83% last fourth quarter, fourth quarter of this -- of fiscal 2020 82%, so down a tick. Mobile offices 87% Q4 of last year, this fourth quarter 81%. Modular units 84% last year, Q4 of fiscal 2020 80%. Utilization down quarter-to-quarter on our core products. Rates are up though. And then for frac tank 69% Q4 of last year, 35% Q4 of this year.
- Scott Schneeberger:
- Thanks, Chuck. Appreciate that. One more if I could sneak it in.
- Charles Barrantes:
- Sure.
- Scott Schneeberger:
- 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 geographies driving that metric? Thanks.
- Charles Barrantes:
- I would say that in Australia, just culturally a lot of the vendors over there extended out, whereas here, it's not quite the case. You would have thought the opposite, but actually our team in North America was very active in collection particularly in oil and gas section. So, much more aggressive in North America, a little bit more culturally in Asia-Pacific. But I mean, it was a significant proven North America, but not a significant drop from in the Asia-Pacific area.
- Scott Schneeberger:
- All right. Thanks guys. Appreciate it. I will turn over it.
- Charles Barrantes:
- Sure.
- Operator:
- Our next question comes from line of Tom Gillespie of Ameriprise.
- Tom Gillespie:
- Hi. Under new opportunities for your liquid containment, is there any crossover utilization that you can do with that maybe with water or whatever. And second, do you have an opinion on the WillScot, Mobile Mini merging?
- Jody Miller:
- Hey, Tom. So, as far as the tanks, we do have tanks used for other things besides oil and gas, but the majority of our tanks are located in the Permian and some in the Eagle Ford, but mainly in the Permian. It just comes down to economics in yearly changing, complete strategy. If we didn't think oil and gas was going to come back within the next year or two, then 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're positioned well. We feel like there'll be less competitors when things come back, and because of our proactive measures on safety and selection of customers, we feel like we're going to be in the front of the group when oil and gas does come back. So, that's our position now, not to say it can't change. And then the merger, I think -- you saw their results. I think, they obviously have some opportunity through synergy. I think consolidation industry overall is probably good. They're both good competitors and hold their pricing well. So, we don't really see any negative to it at all. That's about it.
- Tom Gillespie:
- Thanks.
- Operator:
- [Operator Instructions] And there are no other questions at this time. I'd like to turn the call back over to Mr. Jody Miller, President and CEO for closing remarks. Please go ahead Mr. Miller.
- Jody 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.
- Operator:
- Thank you. Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.
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