General Finance Corporation
Q4 2019 Earnings Call Transcript
Published:
- Operator:
- Welcome to General Finance Corporation's Earnings Conference Call for the Fourth Quarter and Fiscal Year Ended June 30, 2019. Hosting the call today from the company's corporate office in Pasadena, California are Mr. Jody Miller, President and Chief Executive Officer; and Mr. Charles Barrantes, Executive Vice President and Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 2
- Christopher 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 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 demands; 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; 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 also discuss certain non-US GAAP financial measures, such as adjusted EBITDA. A reconciliation of how we define and arrive at adjusted EBITDA is in our earnings release and will be included in our Annual Report on Form 10-K. And now I'll turn the call over to Jody Miller, President and Chief Executive Officer. Jody, please go ahead.
- Jody E. Miller:
- Thank you Chris. Good morning, and we appreciate you joining us today for our fourth quarter fiscal year 2019 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 fiscal year 2020. Following his remarks we will open the call up for questions.We are extremely proud of our accomplishments in fiscal year 2019 delivering record revenues and adjusted EBITDA driven by growth across all of our operations. We finished the year with solid momentum for the fourth quarter generating year-over-year improvement across virtually all of our key operational and financial metrics. In fiscal year 2019, we surpassed our quickly approaching important milestones in our company's history. We now serve over 50,000 customers from our 100 branches across two geographic venues. Our leased fleet is now comprised of nearly 100,000 units with over 80% of those units being portable storage or ground level office containers which offer the most attractive unit level economics.It was a year of a century marked for us as we also generated adjusted EBITDA in excess of 100 million which is a company record. Our North American leasing operations again delivered record results and led our growth as our core container business the Pac-Van posted a 16% organic growth rate year-over-year in leasing revenues. Our team at Pac-Van continues do a great job executing on a number of key initiatives particularly our National Account Program and our recently introduced PV3 safety containers. At year-end we had on lease nearly 4000 PV3 safety containers and Wolf Lock premium containers and expect that number to grow significantly in the fiscal year.We've also commenced our online ordering capabilities of Pac-Van and are optimistic about the initiative going forward. With all the success that we are experiencing at Pac-Van it comes as no surprise that we continue to be highly regarded by our customer base achieving a world class Net Promoter Score of 84 for the full year. In addition to organic growth we remain focused on our long-term goals of growing Pac-Van's footprint through North America by geographically expanding our portable storage container business particularly into adjacent markets. During the year we completed five acquisitions and two new markets through Greenville locations.We continue to serve over half of the top 100 MSA's in the U.S. and our acquisition pipeline remains healthy. To put this geographic expansion in perspective over the last 10 years we've completed 32 acquisitions in North America growing from a footprint of 26 primary locations to 64 locations today. Our liquid container business delivered improved results for the fiscal year despite a moderation in the leasing activity in Texas.While oil and gas production in both basins generally remain healthy, we have been impacted by slower activity year-over-year. Additionally there continues to be some lingering pipeline availability challenges with some of our customers in the Permian as well as customer consolidation. We remain optimistic about this business as all indicators continue to point to healthy production activity in both basins for the foreseeable future.Our North American manufacturing operations continue to deliver improved results. Total revenues including sales of our North American leasing operations increased by 30% during the fiscal year and standalone adjusted EBITDA increased by over $1 million. This ongoing improvement is due to an increase in demand in specialty tanks and trailers as well as ground level containers built for Pac-Van.Now turning to our Asia-Pacific region. Our Asia-Pacific region delivered a solid performance driven by a 9% increase in leasing revenues in local currency with an increased activity across most sectors notably in the transportation, industrial, construction, and consumer sectors. This is the 11th out of the last 12 quarters where Royal Wolf has delivered year-over-year growth in leasing revenues mainly due to growth in average units on lease and improved fleet utilization. In fiscal year 2019 we also saw an increase in overall average monthly lease rates due to moderate pricing power combined with an improved product mix. Our Royal Wolf team remains focused on building upon this leading market position across Australia and New Zealand through a combination of organic growth in Greenfield openings and to the extent they are available accretive acquisitions.During the fiscal year we strengthen our market presence in the region with an acquisition of our largest competitor in New Zealand and one Greenfield opening in Australia. Over the last 10 years Royal Wolf has completed 12 acquisitions and grown its footprint in the region from 24 primary locations to 37 today. To conclude our hardworking employees continue to execute on our proven business strategy and their dedication to the company has led to an outstanding and record breaking financial performance. We continue to see both organic and expansion opportunities in North America and the ability to strengthen our market leadership in the Asia Pacific region. As always we will remain disciplined in our capital allocation. We ended the year on a high note with our strong performance positions us well for another year of solid financial results in fiscal 2020. I'll now turn the call over to Chuck Barrantes for his financial review and our outlook for the current fiscal year.
- Charles E. Barrantes:
- Thanks 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 on our website and I encourage investors and other interested parties to read it as it contains substantial amount of information about our company, some of which we will discuss today.Now turning to our financial results, our fiscal 2019 results fell within the guidance range we provide in conjunction with the reporting of our third quarter results. Not only did we generate record revenues and adjusted EBITDA for the year but our fourth quarter results marked the 10th consecutive quarter where we have delivered year-over-year growth in adjusted EBITDA. In addition to reaching the key milestones that Jody referred to we also made significant progress strengthening our balance sheet and improving our financial flexibility. We lowered our overall cost of financing as we successfully replaced higher cost, debt in both geographic venues with lower cost borrowings on our amended and expanded credit facility in each region. In addition our strong financial performance enable us to end the year with a net leverage ratio below four times, our lowest level in five years.Turning to our fourth quarter results total revenues were 96.2 million in the fourth quarter of fiscal 2019 compared to 93.8 million for the fourth quarter of fiscal year 2018, an increase of 3%. Leasing revenues [indiscernible] an increase of 4% from the prior year's quarter and comprised 63% of total manufacturing revenues for both fourth quarter periods. Non-manufacturing sales revenues were 34.3 million in the quarter an increase of 2% over the fourth quarter of the prior year. In our North American leasing operations revenues for the fourth quarter totaled 61.1 million compared with 57.4 million for the year ago period, an increase of 8% mainly driven by increases in the construction, commercial, mining, and industrial sectors and were partially offset by a decrease in oil and gas sector. Leasing and sales revenues increased by 6% to 11% on a year-over-year basis respectively.Revenues in our North American manufacturing facility for the fourth quarter was 4.2 million which included company sales of 1.4 million to our North American leasing operations. This compares to 3.7 million of total sales for the year ago period including intercompany sales of 190,000. Our manufacturing operations saw increased demand for specialty tanks and other steel related products particularly ground level office container modifications for our North American leasing operations. In our Asia-Pacific leasing operations EBIT revenues for the fourth quarter totaled 31.5 million compared to 32.9 million for the fourth quarter fiscal year 2018, a decrease of 4%. On a local currency basis total revenues increased by approximately 4% and leasing revenues increased by 8%. The increase in leasing revenues was driven primarily by increases in the transportation, industrial, education, and retail sectors and partially offset by a decrease in the construction sector.Consolidated adjusted EBITDA was 26.1 million in the fourth quarter of 2019 compared to 23 million in the prior year's quarter, an increase of 13%. And adjusted EBITDA margin as a percentage of total revenue was 27% up from 25% in the fourth quarter of fiscal 2018. As I mentioned this was the 10th consecutive quarter of year-over-year adjusted EBITDA growth. In North America adjusted EBITDA for our leasing operations was 19 million in the fourth quarter compared to 17.6 million for the year ago quarter, an increase of 8%. Adjusted EBITDA at Pac-Van was 14.7 million up 25% year-over-year and Lone Star adjusted EBITDA was 4.3 million down from 5.8 million in the prior year's fourth quarter.For our manufacturing operations on a standalone basis adjusted EBITDA was 634,000 for the quarter compared to last year's fourth quarter adjusted EBITDA of 460,000. Asia-Pacific adjusted EBITDA for the quarter was 8.8 million compared to 7.5 million in the year ago period, an increase of 17%. On overall currency basis adjusted EBITDA increased by 27% from the prior year's fourth quarter. Interest expense for the fourth quarter of 2019 was 7.6 million down from 9.3 million for the fourth quarter of last year. The decrease was primarily driven by lower interest expense in the Asia-Pacific area due to lower average borrowings and a lower interest rate of 8.1% for the fourth quarter fiscal 2019 versus 10% in the year ago period driven by weaker Australian dollar in the period.Net income attributable common stockholders in the fourth quarter was 4.3 million or $0.14 per diluted share compared to a net loss of 11.6 million or $0.44 per share in the year ago fourth quarter. Including these results are non-cash charges of 1.7 million to 11.5 million in fiscal year 2019 and 2018 respectively for the change in valuation of standalone bifurcating derivatives. Both periods included 892,000 for the dividends paid on our preferred stock. For fiscal year 2019 we generated free cash flow before our fleet activity of 50.5 million up slightly from 50 million in the prior year.Turning to our balance sheet at June 30th the company had a net leverage ratio of 3.7 times for the trailing 12 months which compares very favorably with a net leverage ratio of 4.6 times at June 30 2018. Finally turning to our company wide outlook for fiscal year 2020, depending on the conditions of new oil and gas sector in Texas and assuming the Australian dollar averages $0.68 versus the U.S. dollar we estimate that consolidated revenues for fiscal year 2020 will be in the range of 370 million to 390 million and the consolidated adjusted EBITDA is expected to be in the range of plus or minus 4% in fiscal year 2020 from fiscal year 2019. This outlook does not take into account the impact of any acquisitions that may occur in fiscal year 2020. This now concludes our prepared comments and I would like to turn the call back to the operator for the question and answer session.
- Operator:
- Thank you. [Operator Instructions]. Our first question comes from the line of Brent Thielman of D.A. Davidson.
- Brent Thielman:
- Thanks, good morning.
- Jody E. Miller:
- Good morning Brent.
- Brent Thielman:
- Jody or Chuck, I guess in terms of the outlook for F 2020 could you give a little more detail kind of what you're factoring in for Lone Star. I understand the longer term outlook is positive notwithstanding some near-term headwinds, so just trying to get a sense of what you're kind of factoring into that initial view for F 2020 for Lone Star?
- Jody E. Miller:
- Yes Brent, thanks, this is Jody. So if you look at our current quarter run rate we're probably more in that 15 million to 16 million range. So that's why we're a little bit more conservative on the outlook there. I mean all indicators show that it should improve. There's a lot of wells drilled and as we've mentioned before we're heavier on the production and completion side so we're optimistic that things will get more positive but that's kind of where our estimates are. Pac-Van obviously is doing very well and growing at a nice pace and kind of offset by that Lone Star being more of today's run rate versus the latter half of last year when things were a little more positive. So, that's kind of how we're looking at it but cautiously optimistic it'll be better than that.
- Brent Thielman:
- Okay, and then I guess on Pac-Van's kind of traditional end markets which sectors are you seeing strengthening and I guess similarly where might you be seeing some softening and I guess in demand within those verticals?
- Jody E. Miller:
- Yeah to be honest we've not seen any negatives. Our retail season appears it's going to be very strong for us. The construction sector, industrial sectors are still doing very well and we're getting nice growth across the board. Commercial still kind of leading the pack so I think as product awareness continues to grow and the economy grows well we're doing quite well and don't really see any softening in any one area or geographically either.
- Brent Thielman:
- Okay. I guess my last question, that's the leverage ratio set four times [ph] I guess as you think about the new fiscal year where would you ideally like to see that ratio land by year-end?
- Charles E. Barrantes:
- Well, you know assuming that we do not make a significant investment in acquisitions I mean we would anticipate having that leverage go down. But we've stated publicly before we actually like our sweet spot, the leverage between -- to be somewhere around 4 to 4.5. So we're a little bit below which is good, which shows the profitability but also we think that we can certainly use whatever free cash flow we have to continue to make investments in acquisitions.
- Brent Thielman:
- Okay. Thank you.
- Operator:
- Our next question comes from line of Scott Schneeberger of Oppenheimer.
- Unidentified Analyst:
- Good morning, it is Daniel on for Scott. Hey guys, can we talk about the pricing environment across the segments, if you can give us an overview of how things are looking now and what the opportunity is going forward?
- Jody E. Miller:
- Yeah. So, on the Pac-Van and the portable storage side pricing is doing very nicely. We're seeing very consistent price increases like we've seen the last several quarters with the ground level or GLOs kind of leading the pack in price increases. On the Royal Wolf side very modest price increases but they are coming up. And then on the Lone Star side we've seen just a little bit of compression. Actually the Eagle Ford is up a little bit but the Permian is down slightly and I think that's just a natural occurrence with the slowdown but nothing too drastic at this point.
- Unidentified Analyst:
- Okay, thank you for that. On the end markets in Asia-Pacific can you talk about where you see opportunities over fiscal 2020?
- Jody E. Miller:
- Yeah, I think probably our biggest opportunity there is on the building and construction. That's an area that we feel like has a lot of opportunity for growth. Some of our products are becoming more popular in the stackable solutions on the BMC side. So I would say that and then just naturally in Australia New Zealand markets as I mentioned before everything's moved by rail. So our freight segment is doing quite well as well. And then our camps that have been sitting idle for many years we've got most of those out or spoken for at this point which will be a nice lift for Royal Wolf as well. So pricing wise they're doing nicely. Not as a big a price increases we've got in North America but they're still on the rise versus flat.
- Unidentified Analyst:
- Got it, thank you. Final one from me CAPEX plans for fiscal 2020 and the categories?
- Jody E. Miller:
- So we're looking at as far as our planning is concerned we're looking at fiscal 2020 net CAPEX to be actually comparable to fiscal year 2018. So in fiscal year 2019 our net CAPEX was around $39 million, in fiscal 2018 it was around $21 million and we're looking at net CAPEX to be around the same level as fiscal 2018 and fiscal year 2020 $22 million. That's net CAPEX. The gross CAPEX obviously is a little higher, gross CAPEX would be 60 million but we expect it to with the sales out of the fleets down to 22 million. And that comes from primarily North America. Asia Pacific we anticipate somewhere between 1 million to 2 million and North America to make up the balance in 2022.
- Unidentified Analyst:
- Okay, that's very helpful. Thank you so much.
- Operator:
- Our next question comes from the line of Brian Gagnon of Gagnon Securities.
- Brian Gagnon:
- Well gentleman, same question but a little bit differently. If you only have 22 million of net CAPEX and you've got 50 plus million of free cash flow do you think you have enough opportunities to acquire businesses or will you expand into more Greenfields or will you really try to pay down the most expensive debt that you have?
- Jody E. Miller:
- I'll address the last one first. If we do not have significant acquisition we would expect that after we pay our preferred stock dividends we'd have somewhere in the vicinity of 20 million to 25 million consolidated to reduce our overall indebtedness. And Chuck go ahead.
- Charles E. Barrantes:
- I was just going to say regarding the acquisition side our pipeline remains healthy. We don't see any anything changing. As I mentioned on the call we had 5 last year so we do feel like there's opportunities there. As far as expansion we are a little more aggressive with Greenfields this past year just because of some of the hurricane rebuild opportunities and we'll continue to expand Greenfield. And again we prefer adjacent markets but we do feel like there's a great opportunity to expand in the Greenfield side as well.
- Brian Gagnon:
- Okay, alright. The interest expense you pushed down your interest rate in Australia to I guess 8% you said versus last year's 10%?
- Charles E. Barrantes:
- Yeah, for the fourth quarter yeah, weighted averages.
- Brian Gagnon:
- What do you think the weighted averages are for 2020 at this point?
- Charles E. Barrantes:
- Well, we no longer have the Bison debt so I would determine the weighted average based on the BBSwide plus the margin to be somewhere in the vicinity of 6% to 7%.
- Brian Gagnon:
- Okay, so we're going get an additional benefit on interest expense?
- Charles E. Barrantes:
- Yeah, I would say expense consolidated going forward is somewhere in the 7 million to 7.5 million per quarter range which is significantly less than what it has been in the prior quarters.
- Brian Gagnon:
- Okay, terrific. That's all I have for now. Thank you.
- Operator:
- [Operator Instructions]. Our next question comes from the line of Luis Hernandez, a Private Investor.
- Luis Hernandez:
- Just follow-up, good morning guys.
- Jody E. Miller:
- Good morning Luis.
- Luis Hernandez:
- Alright, my first question is related to a capital structure. Have you thought about doing anything with the preferreds? I believe they -- in August they became redeemable. Maybe I'm wrong but have you thought about anything on that front?
- Charles E. Barrantes:
- Yeah Luis, this is Chuck. So yes, we've thought -- actually they've been redeemable since May of 2018 I believe. So, as you know they're classified as equity. We are looking at that also in the context of the senior notes which are due in July 2021. Prior to that we had a few refinancing as you know Luis in terms of the Bison capital, refinance the Deutsche Bank and also refinancing Wells Fargo. So that is definitely next on our capital structure list.
- Luis Hernandez:
- Okay great. And then you said 50.5 in free cash flow, is that what you said?
- Charles E. Barrantes:
- 50.5 was the free cash flow for this fiscal year, yes.
- Luis Hernandez:
- 50.5, alright. Okay then…
- Charles E. Barrantes:
- And that's an older interest so that's after interest payments, before investments and any type of debt reduction.
- Luis Hernandez:
- Right, and then before the preferred dividends.
- Charles E. Barrantes:
- Correct.
- Luis Hernandez:
- Right. Jody did mention on the Lone Star's estimated EBITDA to be around 15 million to 16 million, right?
- Charles E. Barrantes:
- That is the estimate, he said that's kind of the current run rate.
- Jody E. Miller:
- Yeah, that's the current run rate Luis. We're hoping that activity will pick up and after the consolidation kind of works its way out with a couple of our larger customers and the pipelines free up we're hoping the completion kind of speeds back up but that's our current run rate, yes.
- Luis Hernandez:
- Right, but would you think it's going to be a little higher maybe, is that what you're saying?
- Jody E. Miller:
- But we're cautiously optimistic that it will be higher because we feel like the well is already drilled. So they only have so long to put those wells into completion for production of oil. So that's where we spend most of our time is on that side of business not the drilling side. So we feel like it's going to be picking up. We've heard it's going to for a few months now and it's kind of staying the same but we feel like that it is going to pick up. But we don't know for sure.
- Luis Hernandez:
- Right, well, of course. Okay, and then I just want to sort of like a reminder on the Greenfield economics. Let's say you started Greenfield today, walk me a little bit through the numbers, payback period and then returns on capital obviously estimated and obviously in an average type number?
- Jody E. Miller:
- Yeah, we have always used six months as kind of a break even as an average. But I will tell you that last year a couple of our Greenfields were related to the hurricane rebuild and damage and those Greenfields were virtually profitable the second month out of the gate because there was a lot of volume that went out pretty quickly and not a lot of cost associated right. We just had a yard, a drop yard and driver, we were up and going and shipped the units there. So those were a little bit more of an anomaly just because of the situation but typically speaking we say six months and I would say 90% of our colds greenfields in the last three years have been profitable under a six-month time period.
- Luis Hernandez:
- Great, and after you reached the payback what's the next few years or next several years expected return on capital, internal -- what you expect on an average way of those Greenfields?
- Jody E. Miller:
- Yeah, we would like to think we can get over a 20% return early in its life for most of our branches at more of a 50% to 60% EBITDA at the local level after they're established. So that kind of ramped up from there, that kind of gives you a range.
- Luis Hernandez:
- Right, okay, and in terms of growth for this past year do you remember how many dots did you have in North America and how many dots do you have at the end of the year, I mean at the beginning and then at the end, by dots I mean the offices, yeah?
- Jody E. Miller:
- Yeah, well at the end in North America we had a total of 64 dots which includes Lone Star's two dots. So that consists of three in Canada. So we added in fiscal year 2019 North America I believe four dots in total.
- Charles E. Barrantes:
- I think it is five.
- Jody E. Miller:
- Five dots in total for the fiscal year. Because a couple of acquisitions were tuck-ins to our current location.
- Luis Hernandez:
- Right, okay and for this year do you estimate a similar number or maybe higher?
- Jody E. Miller:
- Yes. Yes.
- Luis Hernandez:
- A similar number, right. Okay, great. Alright, I think that's all for me and thanks and congratulations on a pretty good year.
- Jody E. Miller:
- Thank you. Thank you.
- Operator:
- There are no other questions at this time. I would now like to turn the call over to Mr. Jody Miller, President and CEO for closing remarks. Please go ahead Mr. Miller.
- Jody E. Miller:
- Thank you, operator. Thanks for joining us for our call today. We appreciate your continued interest in General Finance Corporation. Look forward to speaking to you 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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