General Finance Corporation
Q1 2018 Earnings Call Transcript

Published: 12 Nov 2017

[Operator:]

Welcome to General Finance Corporation's Earnings Conference Call for the first quarter ended September 30, 2017. Hosting the call today from the company’s corporate offices in Pasadena, California are Mr. Ronald Valenta, Chairman and Chief Executive Officer of General Finance Corporation 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

[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 pressures, increases in interest rates for our variable interest rate indebtedness, our ability to raise capital or borrow additional funds, 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 of customers, declines in demand for our products and services from key industries such as the Australian Construction and Transpiration Industry 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-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'll retune the call over to Ron Valenta, Chairman and CEO. Ronald, please go ahead.

[Ronald Valenta:]

Thank you, Chris and good morning and we appreciate you joining us to discuss General Finance's First Quarter Fiscal Year 2018 Results. As in prior earnings calls, I will begin with a brief discussion of our operations and then provide an update on our outlook for the remainder of the fiscal year. Our CFO, Chuck Barrantes, will then provide a financial overview, and following his remarks we will open the call for your questions. Also joining us again for today’s question-and-answer session is Jody Miller, our President and my successor as CEO in January of 2018. We are very pleased and encouraged by our strong start to fiscal year 2018. The solid momentum that we experienced in the second half of fiscal year 2017 has continued into this fiscal year's first quarter, where we generated significant year-over-year improvement in several of our key operational and financial metrics, including fleet utilization, leasing revenues and adjusted EBITDA. Our North America leasing operations continued to experience healthy demand in the majority of end-markets and product lines, where total revenues increased by 23% compared to the prior year's first quarter. Additionally, all of our product lines in North America experienced both higher average units on lease and higher average fleet utilization during the quarter, as compared to the first quarter of fiscal 2017. In North America, our core portable storage business continues to perform at the high end of our expectations, driven in large part by our geographic expansion, organic growth and superior customer service. Pac-Van continues to post an excellent net promoter score, which was 84% for the most recent quarter and for the last 12 months. In addition to organic growth, we continue to focus on geographically expanding our portable storage container business in North America, and during the first quarter of fiscal year 2018, we opened a Greenfield branch in Elko, Nevada and completed a small acquisition in Texas. As we have discussed on past calls, we primarily execute our Greenfield strategy using a hub-and-spoke approach, where we open a branch in a market that is in relatively close proximity to an existing branch or hub, in order for the new location to receive initial support from that hub branch. Over the last two years, we have successfully opened nine such Greenfield branches in North America and have been quite pleased with how these branches have performed. Generally, these branches have achieved positive EBITDA within the first two quarters of opening, which is significantly better than what would be the case with a cold start Greenfield, which in the past has taken up to two or three years to achieve EBITDA. We remain focused on expanding in North America both organically through Greenfield locations and through accretive acquisitions, where our pipeline remains healthy as we continue to see a fair number of opportunities in the United States, where we currently have a presence in 47 of the top 100 MSAs. In our liquid containment business in North America, we generated very strong leasing revenue growth, both sequentially from the fourth quarter and on a year-over-year basis when compared to last year’s first quarter. Increased oil and gas production activity in Texas has enabled us to achieve higher sequential average fleet utilization for the fifth quarter in a row and at the highest level in over two years. For the first quarter frac tank average utilization was 72%, up from 58% in the fourth quarter of fiscal year 2017 and 39% during the prior-year same period. In addition, we experienced an increase in average monthly lease rates on a sequential basis for the fourth quarter in a row to $676 for the first quarter, up nearly 9% from the fourth quarter of fiscal year 2017 and 43% from the first quarter of fiscal year 2017. While we are pleased that oil and gas activity remains healthy in the basins that we serve, we believe that a good portion of our success in this business is driven by our high level of customer service and our excellent safety record. Our North America manufacturing operations delivered significantly improved revenue for the first quarter, both sequentially and year-over-year. This improvement included higher sales to external customers, as well as to our North American leasing operations. Southern Frac has experienced increased demand for some specialty frac tanks, particularly tanks that meet the new vapor type requirements in Texas. While the revenues were up in manufacturing, our adjusted EBITDA loss was fairly consistent with the last several quarters as our production level was down year-over-year and the increase in sales was primarily from our existing inventory of frac tanks. Southern Frac is also making good progress on the marking of its chassis and specialized blast resistant container products and has been receiving bid requests, but as of yet has not received a large, steady-production order for either product. Now turning to the Asia-Pacific region, we are pleased to have completed the acquisition of the non-controlling interest of Royal Wolf. We now fully own Royal Wolf and look forward to a more simplified capital structure, as well as continued operational focus and the elimination of public company expenses. In the Asia-Pacific, both total revenues and leasing revenues were up during the quarter, primarily as a result of increases in the construction, transportation and retail sectors, partially offset by a decrease in the oil and gas sector and combined with a favorable foreign exchange translation effect between periods. Adjusted EBITDA also increased both in U.S. dollars and in local currency. The Royal Wolf team continues to implement a number of growth initiatives and remains focused on building upon its leading market position across the region, through a combination of organic growth, Greenfield openings and accretive acquisitions, to the extent that they become available. During the first quarter, Royal Wolf opened one Greenfield location in New Zealand. Management continues to work on re-deploying its workforce accommodation fleet, either through outline sales or through re-leasing it in the normal course of business. Going forward, we continue to be optimistic about fiscal year 2018 based on a more favorable outlook for the Australian economy, the ongoing activity in non-residential construction across the region, and our continued strong execution in New Zealand. I would now like to discuss our company-wide outlook. Based on our first quarter results and assuming the Australian dollar averages $0.78 versus the U.S. dollar in fiscal year 2018, which represents a 3% increase from fiscal year 2017, we expect that consolidated revenues and adjusted EBITDA will be at the higher end of the guidance range that we provided on our fourth quarter earnings call. On that call, we stated that we expected that consolidated revenues for fiscal year 2018 would be in the range of $295 million to $315 million, and that consolidated adjusted EBITDA would increase by 8% to 16% in fiscal year 2018 from fiscal year 2017. This outlook does not take into account the impact of any additional acquisitions that may occur in fiscal year 2018. To conclude, we continue to have a number of long-term growth opportunities, including significantly expanding our North American footprint and strengthening our market leadership in the Asia-Pacific region. We will remain disciplined in our capital allocation, deploying our resources and capital where we see healthy demand and opportunity, with a primary focus on our portable storage container and office container product lines. At this time, I’d now like to turn the call over to Chuck for his financial review.

[Charles Barrantes:]

Thanks Ron. We’ll 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 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. Turning to our financial results, total revenues were $76.9 million in the first quarter of fiscal year 2018, compared to $62.8 million for the first quarter fiscal year 2017, an increase of 22%. Leasing revenues were $49.6 million, an increase of 20% over the prior year’s quarter, and comprised 66% of total non-manufacturing revenues as compared to 67% for the same period last year. Non-manufacturing sales revenues were $25.4 million in the quarter, an increase of 25% over the first quarter of the prior year. In our North American leasing operations, revenues for the first quarter fiscal year 2018 totaled $46 million, compared with $37.5 million for the year-ago period, an increase of 23%. Leasing revenues increased by 26% on a year-over-year basis, primarily driven by increases in the oil and gas, commercial and construction sectors. Revenues at our North America manufacturing operations for the first quarter were $3.1 million, including intercompany sales of $1.2 million to our North American leasing operations. This compares to $1.7 million of total sales during the first quarter of fiscal year 2017, including intercompany sales of $0.6 million. As Ron mentioned, our manufacturing operations saw increased demand for some specialty frac tanks, as well as some of our new steel-based products. In our Asia-Pacific leasing operations, revenues for the first quarter of fiscal 2018 totaled $29 million compared to a little over $24 million for the first quarter of fiscal year 2017, an increase of 20%. The increase in revenues occurred primarily in the construction, transportation and retail sectors, partially offset by a decrease in the oil and gas sector and was accompanied by a favorable foreign exchange translation effect between the periods. On a local currency basis, revenues increased by 13% between the periods. Leasing revenues increased by approximately 9% on a year-over-year basis, driven by increases across most sectors, but particularly in the construction, manufacturing, transportation and consumer sectors, partially offset by a decrease in the oil and gas sector. Consolidated adjusted EBITDA was $17.6 million in the first quarter of 2018, compared with $13 million in the prior year’s quarter, an increase of approximately 36%, and adjusted EBITDA margin as a percentage of total revenues was 23%, up from 21% in the first quarter fiscal year 2017. This was the third quarter in a row of year-over-year adjusted EBITDA growth. In North America, adjusted EBITDA for our leasing operations was $12.4 million in the first quarter, compared with $8.6 million for the year-ago quarter, an increase of 44%. Adjusted EBITDA at Pac-Van was $9.5 million, up 25% year-over-year and Lone Star’s adjusted EBITDA was $2.9 million, nearly three times the prior year’s amount of $1 million. For our manufacturing operations, on a stand-alone basis adjusted EBITDA was a loss of $375,000 for the quarter, comparable to last year’s fourth quarter adjusted EBITDA loss of $398,000. As Ron mentioned earlier, while our revenues increased significantly at Southern Frac, the increase in sales primarily occurred from product that was in finished inventory. This inventory was reduced to net realizable value in prior periods, which resulted in low margins. That, along with lower production levels during the quarter negatively impacted the results. Asia-Pacific’s adjusted EBITDA for the quarter was $6.6 million as compared to $6 million in the year-ago period, an increase of 10%. On a local currency basis adjusted EBITDA increased by 4% from the prior year’s first quarter. Interest expense for the first quarter of 2018 was $5.8 million, up from $4.8 million for the first quarter of last year. The increase was driven primarily by $1 million higher interest expense at our North America leasing operations due to a higher weighted average interest rate of 6% for the first quarter of fiscal year 2018 versus 4.9% in the year-ago period. In the Asia-Pacific area, interest expense was comparable during the periods as the lower weighted average rate of 4.6% in the first quarter of fiscal year 2018 from 5% in fiscal year 2017 was effectively offset by a stronger Australian dollar between the periods. Net loss attributable to common stockholders in the first quarter of 2018 was $965,000 or $0.04 per diluted share, an improvement from the net loss of $2.1 million or $0.08 per share in the first quarter of 2017. Both periods include approximately $900,000 for the dividends paid on our preferred stock. For the first quarter of fiscal year 2018 we generated free cash flow before fleet activity of $9.9 million as compared to $2 million in the first quarter of 2017. Last year’s free cash flow was negatively impacted by a greater reduction in cash flow due to the timing and management of operating assets and liabilities, as compared to this fiscal year’s first quarter. In fiscal year 2018 our management of these operating accounts reduced cash by $4.3 million, whereas in fiscal ‘17 they reduced cash by $8.1 million. Historically we had experienced significant variations in operating assets and liabilities between the periods when conducting our business in due course, particularly in our first quarter, so this is not unusual. As a reminder, we define free cash flow to be cash from operating and investing activities, adjusted for changes in non-manufacturing inventory, net fleet CapEx and business and real estate acquisitions. For the first quarter, the company invested a net $4.1 million in the lease fleet consisting of $3.8 million in North America and $300,000 in the Asia-Pacific as compared to $6.7 million in net fleet investment in the year-ago quarter; $4.4 million in North America and $2.3 million in the Asia-Pacific. Turning to our balance sheet, at September 30 the company had total debt of $435.6 million and cash and equivalents of $10.2 million, with a net leverage ratio of 6.5 times for the trailing 12 months. This compares with $355.6 million and $7.8 million at June 30, ‘17 respectively, with a net leverage ratio of 5.7 times. The increase in total debt and net leverage during the quarter was primarily due to new borrowings used to finance the acquisition of the non-controlling interest of Royal Wolf. Receivables were $49.3 million at September 30, as compared to $44.4 million at June 30. Day sales outstanding and receivables at September 30 for our Asia-Pacific and North American leasing operations were 50 and 49 days, as compared to 49 and 46 days respectively as of June 30. At September 30, 2017, our Asia-Pacific leasing operation had AUD17.2 million available to borrow under its AUD175 million credit facility. However, last week as part of the completion of the financing of our acquisition of the non-controlling interest of Royal Wolf, we refinanced the existing ANZ/CBA credit facility with a new three-year facility provided by Deutsche Bank AG. This new facility has a total capacity of AUD125 million and comparable borrowing availability. Our North America leasing operations had $35 million available to borrow under its $237 million credit facility at September 30. 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:]

[Operator Instructions]. Your first question comes from Scott Schneeberger of Oppenheimer.

[Scott Schneeberger:]

Thanks. Good morning.

[Ronald Valenta:]

Good morning Scott.

[Scott Schneeberger:]

Hey guys. I’d like to start in Pac-Van; just talking a little bit about some of the end market drivers there and if you could please comment as well on the pricing environment?

[Jody Miller:]

Yes, this is Jody. We had a real strong quarter as you can see at Pac-Van. Our container product growth was just over 13.5%, which we’re very proud of. I think the retail side of things this year is a little bit of a question mark. The largest retailer, our volume will be down a little bit from them. They took away a three month minimum that they’ve had previous year, but we are making that up with other retail and core business, which is good for us in the long run. So, we feel like it will be a bit of a wash there and will be better revenue for us down the road. As far as rates go, I would say comparing apples-to-apples, we are experiencing very consistent increases in rate. If you look at it by product line, they’re definitely moving in the right direction just as it has in the last couple of quarters.

[Scott Schneeberger:]

All right, great, thanks. Could you address also Lone Star, just the visibility you have, and kind of what you’ve seen progressively through the last quarter? Thanks.

[Jody Miller:]

Yes. So, you know the Permian continues to be very strong. We haven’t really seen any change to rig count. Data is fairly consistent with where it’s been. We are winning some new customers due to our high level of service, our quality of product, the vapor types as Chuck mentioned earlier on the product side. So I think things are very consistent and continue to be very positive as far as an outlook in that sector.

[Scott Schneeberger:]

All right, great, thanks. And then just one more from me; Chuck, if you could comment on DSO’s increase, just the dynamic of working capital in the quarter. Give us a little more frame of reference of what we’re…

[Charles Barrantes:]

Yes. So Scott, so DSO’s picked up a little bit. Overall, our management of the operating assets and liabilities are better this quarter versus last quarter. But basically, the reason for the [inaudible] DSO primarily at Royal Wolf was they are getting more involved in the construction industry and the construction industry in Australia typically has a longer lag. So it’s not necessarily the management of payables and that sort of thing or receivables, but really part more industry sector. So we’d like it, the sweet spot to be at Royal Wolf somewhere around 45 days and we’re gravitating to that. But we are as I mentioned, moving more into that sector. So overall, the lag is pretty reasonable I think at this point.

[Scott Schneeberger:]

Okay. All right, thanks guys very much.

[Operator:]

Your next question comes from Brent Thielman of D.A. Davidson.

[Brent Thielman:]

Hey, thanks. Good morning.

[Ronald Valenta:]

Good morning Brent.

[Brent Thielman:]

So Jody, this quarter, December quarter you tend to see a seasonal kind of sequential step up in leasing revenue. You mentioned the moving pieces of the retailers. Do you still expect to see that in this period?

[Jody Miller:]

Yes, I think again the largest retailer changed their program this year where they are not guaranteeing three month minimums. So a lot of the containers are only going out for a month or two versus last year where we were guaranteed three months. So we kind of strategically said, we’re not going to be as aggressive with that retailer, but go after some other national account retail customers, as well as construction. So we were able to make up that volume with other customers that are more core and longer term. So we feel confident that we’ll continue.

[Brent Thielman:]

Okay and then Lone Star continues to see a real nice recovery here. We hear some concerns out there about having overhang of unused units sitting around. I guess if that’s what you see as well, what’s preventing that capacity from hitting the market or maybe it is in the market, it’s just not strong right now. Any color there?

[Jody Miller:]

Yeah. I don’t think there is an enormous amount of availability out there. To be honest, you know a lot of those tanks were not maintained at the time they went idle. So there is thousands of dollars of work that may have to be done to those tanks to bring them back to acceptable quality to rent. So capacity out there I think is good. We’ve had, as Chuck reported in his statements, a really nice rate recovery on the Lone Star side and we are consistently seeing good trends pointing forward as well.

[Brent Thielman:]

Okay. And with your EBITDA outlook, what do you assume for kind of fleet utilization for Lone Star?

[Jody Miller:]

Yes, I think it’s – again, we’ve gained some customers in the quarter, which I think will add more higher utilization rates in the near future. There’s plenty of capacity out there. We just got to make sure the mixes are right. We’re doing some conversions of tanks to meet the customer requirement. So I think nice steady increase in the quarter is likely very consistent.

[Brent Thielman:]

And then last one if I could from a, I guess a balance sheet perspective, any thoughts here on the plan over the next 12 months? Are you going to pump the break on M&A to some degree and maybe address some of the data or is it kind of business as usual here?

[Ron Valenta:]

Yeah, so I – Good morning, it’s Ron. So I think our plan and our stated plan for the current fiscal is that we are going to be delevering in Australia and then in the U.S. I think from an operating perspective there’s enough cash flow coming out to handle most of its organic growth, but we may have to tap some financing based on the acquisition activity. So I think that’s the general plan. So the net-net possibly is not going to be much different than what you’re seeing now. But you know there’s going to be movement in the two primary venues, would be our best guess if you will or forecast for where we are today.

[Brent Thielman:]

Got you. Okay, thanks guys.

[Operator:]

Your next question comes from Brian Gagnon of Gagnon Securities.

[Brian Gagnon:]

Good morning gentlemen. A couple of questions for you. Can you talk a little bit about the cost savings now that the acquisition of the balance of the shares is complete and I noticed that the SG&A was up a couple of million dollars sequentially? What should the normalized SG&A rate be going forward?

[Charles Barrantes:]

Hey Brian. Good morning, this is Chuck. Yes so SG&A did move up sequentially in absolute dollars, but as a percentage of revenues it's actually a little bit down from the prior periods and certainly from Q1. But primarily the impact in the SG&A is with the completion of the Royal Wolf acquisition, we closed out their long-term incentive plan and that charge was over $1 million versus a normal share-based compensation in Q4 of $100,000. So that is the primary difference in the sequential growth in SG&A. In addition, not necessarily but in terms of total cost structure and the leasing costs, at Lone Star we probably had more than normal maintenance and rental ready expenses incurred and we estimated that to be in the vicinity of $275,000 and $300,000. So net-net we expect SG&A to be comparable with prior periods as a percentage of revenues than actually being down. So as you well know Brian, in our model the more leasing revenues we have, the more contribution to the bottom line. So we think costs are pretty well under control.

[Brian Gagnon:]

Okay. And how about cost savings now that you've completed the Royal Wolf acquisition? Is there anything additional that you've gone through and looked at and said, there's more money to be saved?

[Charles Barrantes:]

No, we looked at that initially and we were pretty familiar with the cost’s there that we can conservatively estimate that the cost of being a public company, a redundant cost, that sort of thing is somewhere in the vicinity of $750,000 a year savings, incremental savings, absolute dollars off the bat and that's pretty much what it's going to be. I mean there’s other obviously types of attributes and positives of being back in the fold, but in terms of pure dollar costs, that's what we're looking at.

[Brian Gagnon:]

Okay, two other questions for you. MSAs, you are in 47 of the 100 now. Crystal ball a little bit. If you look out to the end of your fiscal year ’18,’19 and ‘20, where do you think you might be? And I am not going to ask you whether or not those are going to be acquisitions or Greenfields? Give us a guess.

[Jody Miller:]

Well, I think we've always said we're in the two to four Greenfield area each year and you know our history has shown acquisitions have been in that same ballpark. So I think you could kind of project those two numbers out, and that's going to be relatively close. We don't know where the acquisitions are until they're closed and making sure that they can be acquired at a reasonable multiple that's accretive. But from a Greenfield side, that's kind of where we're comfortable and it doesn't take away from our operations or a distraction and we're able to tuck those in and expand at that pace very comfortably. So I think you could probably project those same numbers going forward, it would be pretty close.

[Brian Gagnon:]

Okay, last question, on your liquid containment, 72% utilization is very good. Congratulations on that. You guys have always said that utilization comes first and then we'll see price. We've seen both kind of coming together in this quarter, but I would assume that 72% was the average for the quarter or was that the exit rate, and the 600 and some odd dollars again would probably be the average for the quarter and not the exit rate. Have you continued to see that utilization holding up? And I think you just mentioned that utilization could potentially be higher, but I would suspect you would only be doing that if you got higher pricing as well.

[Jody Miller:]

Yes. So I think two things, right; our utilization is one thing and the industry is another. So as soon as the industry capacity is completely used up, then obviously tanks become short and pricing gets more aggressive. But to answer your question directly, yes, we have seen continued rate increases. As our utilization has spiked we kind of get to weed out some of the lower rate customers and switch those out over to long-term, better-rated customers. So I think that's what's kind of happening now. And regarding utilization we’ve seen consistent increases continue and it doesn't appear to change or be any different from that going forward.

[Brian Gagnon:]

And we've always kind of thought that getting to about 80% to 83% utilization was about as good as you could get with having to move equipment around?

[Jody Miller:]

Yeah, one bit of change that happened in the downturn as customers used to leave the tanks on rent all the time. So they will be on rent from job to job to ensure that they had them and didn't run short on the next job, and through the downturn they stopped – took them off rent. You know then you had to clean them, prep them and deliver them back out. We are seeing a bit of change in certain tanks that are short, I mean the acid tanks and specialty tanks where they are leaving them on rent, which obviously if they are staying on rent, you'll have higher utilization. So we don't know if that will continue or not. It definitely is – you know we see some of that on some of the specialty side. It would be great to see it across the board, but if not, then I think your forecast on those utilizations is pretty accurate.

[Brian Gagnon:]

Terrific. Thank you. Congratulations on a great quarter.

[Ronald Valenta:]

Thank you, Brian.

[Operator:]

Your next question comes from Greg Eisen of Singular Research.

[Greg Eisen:]

Thanks and good morning.

[Ronald Valenta:]

Hey Greg.

[Greg Eisen:]

Hi. If we can go back to the state of leasing Pac-Man containers to the retail industry, you mentioned the lack of three month minimums this holiday season out of that one customer. As you try to deploy equipment to other retailers, are you able to get three month minimums out of other retailers outside of that one customer?

[Jody Miller:]

Yes, you know it’s a no, some yes and some not so much, but we’ve actually been able to put out a lot of the fleet to what we call our core customers and other segments entirely. So we’ve done I think a good job with a lot of our competitors being short on capacity, containers or trucking. We’ve been able to really concentrate on what we feel like is more stable longer term business. So we think it’s a good strategy for us, and then the other retailers I think have been very positive as well.

[Greg Eisen:]

Okay.

[Jody Miller:]

Remember our retail is less than 5%, so it’s not a huge piece in its entirety, but this quarter coming up it’s been a little bit larger piece obviously.

[Greg Eisen:]

Naturally, given this quarter. Turning to the liquids leasing business, the frac tanks at Lone Star, I think you mentioned that some of the equipment at competitors, as the industry is recovering have to undergo a good deal of maintenance or capital spending to get them up to standard for environmental safety and other issues. For the equipment that you have left not on lease, do you anticipate any significant level of spending in order to get them ready for basic business as opposed to having to adapt them for specialty usages? I think you called out earlier, there was some of that maintenance spending to get some tanks ready for specialty usages, but do you have in general a need to put money into your tanks for the remaining tanks?

[Jody Miller:]

Yes, and so I think we’ve proactively done that. I think Chuck mentioned in his remarks, we had a little bit higher maintenance cost last quarter. Almost every tank has been deployed at this time. When you’re at 80% there is a certain amount of flow that happens in the yard. So I mean, you’re always going to have certain tanks that you put a little bit more money in, but for the most part we’ve already been proactive with that and as you mentioned, that we are doing some conversions at about $1,500 a tank with a two to three month payback. So those are pretty easily recoverable modifications as well.

[Greg Eisen:]

Two to three month payback?

[Jody Miller:]

Correct. On the modifications.

[Greg Eisen:]

On the incremental revenue?

[Jody Miller:]

Correct.

[Greg Eisen:]

That’s quite sweet.

[Jody Miller:]

Yes.

[Greg Eisen:]

Great. Moving on, if I can ask one or two more, you talked about your schedule, your continuing schedule for Greenfield openings being similar to what you’ve done in the past as you look forward, but should we expect your Greenfield openings to be committed to only opening up, shall we say spokes instead of hubs?

[Jody Miller:]

Yes, that’s been our strategy. Again, we can get a very quick return on the hub and spoke side of things. Even if we opened in a major city that we may not be in now, we would still support it by a nearby location. If you look at our map, we have really good coverage nationwide now, still plenty of opportunity to expand and grow. But we would still support those locations for a while until they are big enough to support themselves. We feel like that’s a very good strategy to get good return versus just going as a complete cold start.

[Greg Eisen:]

Right. So on the other hand acquisitions, should we expect acquisitions to represent more of a planting the flag in a location where you don’t have any significant hub close by?

[Jody Miller:]

That’s always been the goal and sometimes they are available and sometimes they are not, but that’s where we do concentrate some of our energy. But again, a lot of them are opportunistic, but we definitely very much like the idea of acquisition in completely new markets for sure.

[Greg Eisen:]

Okay. And going back to Royal Wolf, you’ve issued this debt. I just wanted, if you can confirm for – just remind me and remind all investors about that debt you’ve issued to buy out the remaining Royal Wolf shares. Can you confirm that that debt was issued at the Royal Wolf subsidiary level without recourse to Pac-Man or Lone Star, although it would be guaranteed by the parent company.

[Charles Barrantes:]

The answer is, yes, it was issued at the subsidiary level. There is no guarantee at the parent level; there is no recourse to our North America facility.

[Greg Eisen:]

So no guarantee at the parent level?

[Charles Barrantes:]

There is a guarantee at the subsidiary level. There is a wholly owned subsidiary, GFN Australasia, that’s a wholly owned subsidiary of GFN that guarantees it, but there’s no assets. The parent does not guarantee it. So effectively [inaudible] North America.

[Greg Eisen:]

Got it. So it’s effectively immunized from exposure to the North American operation.

[Charles Barrantes:]

It’s pretty much ring-fenced to Royal Wolf. You might remember there’s a piece of it, there is a convertible piece. The total financing, I’m talking about the Bison Capital launch of $80 million. There is a $26 million piece that has convertible GFN stock. There is a bit of accretion to that debt in terms of the rate of return that would be made up in either cash or stock, but as far as GFN North America credit facility, no recourse, no guarantee from the parent.

[Greg Eisen:]

Got it, got it. And my last question is about just the competitive environment. Are you seeing signs that since the industry is looking pretty strong right now that competition is heating up? The existing competitor is bringing on a lot more equipment or new competitors entering the field, what’s it like out there as business gets better?

[Charles Barrantes:]

I would say there’s no real change. The containers as everyone knows has been a little bit short right now and a much higher cost. So I think that’s probably deterred some. I think the construction and other industry segments are strong, but we’ve not seen anything abnormal or different as far as activity or the competitive side of things at this point.

[Greg Eisen:]

Okay. I’ll let someone else go. Thank you very much.

[Ronald Valenta:]

Thank you, Greg.

[Charles Barrantes:]

Thank you, Greg.

[Operator:]

There are no other questions at this time. I would now like to turn the call back to Mr. Ronald Valenta, Chairman and CEO for any closing remarks. Please go ahead, Mr. Valenta.

[Ronald Valenta:]

Yes. I would like to thank you for joining our call today. We certainly appreciate your continued interest in our company, General Finance Corporation and we look forward to speaking with all of you again for the new calendar year. Thank you.

[Operator:]

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes today’s call. You may now disconnect.