General Finance Corporation
Q4 2016 Earnings Call Transcript

Published: 6 Sep 2016

[Operator:]

Welcome to General Finance Corporation’s Earnings Conference Call for the Fourth Quarter and Fiscal Year Ended June 30, 2016. Hosting the call today from the Company’s corporate offices in Pasadena, California are Mr. Ronald Valenta, President & Chief Executive Officer of General Finance Corporation; and Mr. Charles Barrantes, Executive Vice President & Chief Financial Officer. Today’s call is being recorded and will be available for replay beginning at 1

[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 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 with customers, declines in demand for our products and services from key industries such as the Australian resources 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 the 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 Web site at 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 Annual Report on Form 10-K. And now, I’d like to turn the call over to Ron Valenta, President & CEO. Ron, please go ahead.

[Ronald Valenta:]

Thank you, Chris. Good morning and thanks for joining us to discuss General Finances’ results for the fourth quarter the fiscal year 2016. 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 upcoming fiscal year 2017. Our CFO, Chuck Barrantes will then provide a financial overview, and following his remarks, we will open the call for your questions. Our fourth quarter and full year results were influenced by many of the same trends that we have been experiencing over the past several quarters. We continued to execute well in terms of our core portable storage business and our geographic expansion and end-market diversification strategies. However, these successes were offset again by the impact of two significant macro headwinds, the ongoing uncertainty in the challenging oil and gas markets and a weak Australian dollar relative to the U.S. dollar. While our full year financial results declined when compared to last year’s results, we were encouraged by our year-over-year growth in our non-oil and gas related revenues both in leasing and sales. These results point to some positive market indicators in both of our geographic venues. In our North America leasing operations, we saw improvement across the majority of our end-markets, most notably in the construction, commercial, and industrial sectors. And in the Asia Pacific, we benefitted from improved business conditions in the construction and transportation sectors. Our overall exposure to the oil and gas sector has continued to decline year-over-year representing only 12% of our combined leasing operations revenue for fiscal year 2016. As we had mentioned in the past, we serve a diverse customer base of over 41,000 customers in over 20 industries. With the largest customer in each venue representing less than 5% of that venues revenues. This diversity helps offset challenging conditions in any particular sector as it's presently the case with oil and gas. Revenues from our North America leasing operations for fiscal year 2016 totaled $160 million, a decrease of 4% from the prior year. Leasing revenues declined by approximately 14% on a year-over-year basis primarily as a result of a 53% decline from the oil and gas sector. However, leasing revenues from all other sectors increased by 16% with notable increases in the commercial, construction, and retail sectors. Sales revenues increased by 36% for the year, driven by increase in the construction services, industrial, education, and commercial sectors. Adjusted EBITDA for the fiscal year 2016 decreased to 40.6 million from 49.6 million in the prior year. The decrease in adjusted EBITDA was primarily driven by the lower leasing revenues from the oil and gas sector and corresponding lower adjusted EBITDA contribution from Lone Star, which experienced a year-over-year decline of approximately 10.6 million to 9 million in fiscal year 2016. Adjusted EBITDA from our Pac-Van division increased by 1.6 million for the year to 31.6 million. While our liquid containment leasing business in North America continues to perform below its full potential, it remains profitable on an adjusted EBITDA basis which is a testament to the great job that our team is doing in a very challenging environment. We are cautiously optimistic that the sector is stabilizing, and although we are not anticipating a meaningful increase in drilling activity in the near-term, we continue to maintain our high levels of safety and service and we are very well positioned when activity eventually revamps. Our ongoing favorable results and strong execution in our core portable storage business is also encouraging. We remain committed to providing best-in-class customer service and believe that this has validated our industry leading Net Promoter Score at Pac-Van which was 86% for the most recent quarter and has averaged 83% for the last 12 months. Our North America manufacturing operations continued to be impacted by soft demand for our frac tanks and the startup of our new product lines. Revenues for the year were 8.1 million, down significantly from the prior year and the adjusted EBITDA loss was 3.4 million. While we continue to make progress in the marketing of our recently introduced chassis product as well as the specialized glass resistant containers that I mentioned on our last quarter's call, it is still too early to reach any conclusions. However, we remain hopeful that both of these products are on the path of becoming commercially viable. That being said, we will continue to monitor the situation at Southern Frac. In the Asia Pacific, fiscal year 2016 was the year of transition on a number of fronts. Revenues were down 3% and U.S. dollars put up 11% in local currency. The higher local dollar revenues were primarily driven by higher sales revenues notably in the transportation sector, partially offset by lower leasing revenues from the oil and gas sector. Adjusted EBITDA for fiscal year 2016 was 28.9 million, a decrease of 24% from the prior year. On a local currency basis, adjusted EBITDA decreased by 13%. The Australian economy registered subdued growth as consumer sentiment remained weak against the backdrop of political and economic uncertainty. The Australian dollar appears to have stopped declining in value and has increased relative to the U.S. dollar in the last few months. We are cautiously optimistic that the currency exchange rate will not have a significant adverse effect on the translation of our fiscal year 2017 financial results. We reduced our concentration in the natural resources and energy sector as one of our major customers for our workforce accommodation product line went through a corporate restructuring. As I mentioned, we experienced improved demand for the construction and transportation sectors. In construction, there has been an increase in non-residential construction and infrastructure projects in major cities across the region and we are well positioned to service this demand especially with our stackable worksite solutions. In the transportation sector, we saw higher revenue from our freight product lines, primarily driven by a number of large sales for our moving and logistic customers, some of which involves specialized containers. And as we planned and previously announced in July, Neil Littlewood became Royal Wolf’s new CEO taking over from Bob Allen, our long time and devoted CEO who retired in June. Neil joined Royal Wolf in 2013 in the senior management role and has over 13 years of experience in the equipment rental industry. We are excited and supportive of Neil taking the CEO helm. His transition has been seamless and he's quickly energizing entire Royal Wolf team while implementing a number of growth initiatives. During the year, we continued our strategy of expanding our geographic footprint with accretive container based acquisitions in non-energy sectors. We completed six acquisitions, two in Asia Pacific and four in North America while investing almost $23 million all of which are portable storage container businesses that enhance our overall customer and end-market diversity. These acquisitions brought four new branch locations to North America and the two in Asia Pacific were tuck-in acquisitions in markets where we already had a presence. In addition during fiscal year 2016, we opened four Greenfield locations in North America and two in Asia Pacific. In the year ahead, we will remain focused on continuing our geographic expansion both organically through Greenfield locations and through accretive acquisitions. In July we completed two acquisitions of portable storage container business in the Pacific Northwest, one based in Vancouver, British Columbia and one in Yakima, Washington. Our pipeline remains fluid as we continue to see a number of opportunities particularly in the United States where we currently have a presence in 43 of the top 100 MSAs. Now turning to our company wide outlook for fiscal year 2017, assuming average exchange rate for the Australian dollar versus the U.S. dollar as comparable to fiscal year 2016, we expect the consolidated revenues for fiscal year 2017 will be in the range of $280 million to $300 million and the consolidated adjusted EBITDA will be flat to increasing up to 10% in fiscal year 2017 than fiscal year 2016. This outlook does not take into account the impact of any additional acquisitions that may occur in fiscal year 2017. While fiscal year 2016 was a challenging year for both of our geographic operating units, we're seeing signs of improvement and are cautiously optimistic that in fiscal year 2017 we're once again resuming our historical pattern of growing our top-line and delivering improved financial results each year. Finally, we remain committed to our disciplined approach to capital allocation that is deploying our resources and capital where we see healthy demand and opportunity whether it'd be driven by geography or end-market. There are a number of long-term growth opportunities ahead of us, including significantly expanding our North American footprint, as well as strengthening our market leadership in the Asia-Pacific region. At this time, I’ll now turn the call over the Chuck Barrantes for his financial review.

[Charles Barrantes:]

Thanks, Ron. We'll be filing our Annual Report on Form 10-K later this week, at which time this document will be available on both the SEC’s EDGAR filing system and on our Web site. 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 72.3 million in the fourth quarter of fiscal year 2016, compared to 65.3 million for the fourth quarter of fiscal year 2015. Leasing revenues were 41 million comparable to the prior year's quarter, and comprised of 57% of total non-manufacturing revenues as compared with 64% for the same period last year. Non-manufacturing sales revenues were 31 million in the quarter, up 35% from 22.9 million in the fourth quarter of the prior year. In our North American leasing operations, revenues for the fourth quarter of fiscal year 2016 totaled 39 million compared to 34.7 million for the year ago period, an increase of 12%. Leasing revenues increased by approximately 3% on a year-over-year basis, substantially a result of a 50% increase in leasing revenues from our non-oil and gas sectors with notable increase in the commercial and construction sector which more than offset a 29% drop in the oil and gas sector. Sales revenues increased by 39% during the quarter, driven by increases in the industrial and construction sectors. Revenues on our North American manufacturing operations for the fourth quarter were 1.7 million and included intercompany sales of 1.4 million from products sold to our North American leasing operations. This compares to 1.5 million of total sales during the fourth quarter of fiscal year 2015 and negligible intercompany sale. As Ron mentioned, our manufacturing operations continued to be challenged by reduced demand for portable liquid containment tanks and the startup of new product line. In our Asia-Pacific leasing operations, revenues for the fourth quarter of fiscal year 2016 totaled 33 million compared to 29.1 million for the fourth quarter of fiscal year 2015, an increase of 13%. The increase in revenues occurred primarily in the transportation, construction, and agricultural sectors mainly. This increase was partially offset by decreases in the government, consumer and retail sectors and was accompanied by an approximate 4% unfavorable foreign exchange translation effect between the periods. Consolidated adjusted EBITDA were 13.9 million in the fourth quarter of 2016 comparable to the fourth quarter of 2015 and within the guidance range we provided when we reported our third quarter results. Adjusted EBITDA margin as a percentage of total revenues was 19% compared to 21% in the prior year’s quarter. In North America, adjusted EBITDA for our leasing operation was 8.6 million in the fourth quarter compared with 7 million for the year ago quarter. Including these results was adjusted EBITDA for Lone Star Tank Rental of 1.2 million and 0.4 million for 2016 and 2015 fourth quarter periods respectively. For our manufacturing operations on a standalone basis, Southern Frac’s adjusted EBITDA was a loss of $856,000 for the quarter comparable to last year's fourth quarter adjusted EBITDA loss of $957,000. As Ron mentioned earlier, during the year we are introducing some new steel-based products and our focused on making these products commercially viable. Asia-Pacific’s adjusted EBITDA for the quarter was 8.2 million as compared to 9.2 million in the year ago quarter, down approximately 11%. On a local currency basis, adjusted EBITDA was down 7% to the prior year’s fourth quarter. Interest expense for the fourth quarter of 2016 was 4.8 million down from $5.1 million for the fourth quarter of last year. The decline includes a lower interest expense at our Asia-Pacific leasing operations which consisted of a lower interest rate between the periods 5.3% versus 5.9%. Lower average borrowings and the translation effect of a weaker Australian dollar relative to the U.S. dollar. In North America, an increase in interest expense was a result of both a higher weighted average interest rate and higher average borrowings on a year-over-year basis. The weighted average interest rate in North America was 4.8 up slightly from 4.7 in prior year's fourth quarter. Net loss attributable to common shareholders in the fourth quarter of 2016 was 3.8 million versus 3.1 million in the fourth quarter of 2015. Including the fourth quarter 2016 net loss is a 2.0 million of pretax write downs to portable liquid storage tanks containment inventories and intangible and other assets primarily in our North American manufacturing operations and $700,000 of pretax charges related to severance cost and CEO retirement compensation in our Asia Pacific operations. Both periods include a reduction of approximately 900,000 for the dividends paid on our preferred stock. For the fiscal year 2016, we generated free cash flow before fleet activity of 41.6 million as compared to 33 million in the prior year, an increase of 26% as we continue to focus on maintaining stringent expense controls and managing working capital. 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 capital expenditures, business and real estate acquisitions and prior to our preferred stock dividends. For the fiscal year 2016, the company invested a net 20.8 million in the lease fleet consisting of 14.8 million in North America and 6 million in the Asia-Pacific, down significantly from 54.6 million in net fleet investment in the year ago period. 42.1 million, of which was in North America and 12.5 million in the Asia Pacific. Turning to our balance sheet, at June 30th the company had total debt of 354.5 million and cash and equivalents of 9.3 million with a net leverage ratio of 5.7 times for the trailing 12 months. This compares to the net leverage ratio of 5.8 times at March 31, 2016 and 4.2 times at June 30, 2015. Receivables of 38.1 million at June 30, 2016 as compared to 47.6 million at June 30, 2015, DSO and receivables at June 30, 2016 for our leasing operations improved since June 30, 2015 from 40 to 36 days in the Asia-Pacific and from 66 to 49 days in North America. At June 30, 2016 our Asia Pacific leasing operations had in Australian dollars 36.2 million available to borrow under its $175 million credit facility and our North America leasing operation had 26.9 million available to borrow under its $232 million credit facility. The long useful lives and low maintenance requirements of our lease fleet enhances cash flow and allows us the flexibility to allocate capital between organic fleet expansion and adding new locations. Generally, we expand our organic fleet under normal market conditions and reduce fleet investment when market conditions are less attractive. In fiscal year 2016, our capital allocation decisions enabled us to add 10 new locations and expand on this fleet and our leasing operations even though we reduced our organic fleet investment. 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 Scott Schneeberger of Oppenheimer.

[Scott Schneeberger:]

I'd like to start at talking a little bit more about the acquisitions. I believe I heard you did a couple subsequent to the quarter in the Northwest and just wanted to hear more about the one in the quarter please?

[Charles Barrantes:]

Yes, they were relatively small -- this is Chuck, Scott they are relatively small. The one in Vancouver British Columbia was about US$700,000 and the one in Yakama, Washington was a 1.7 million, so about 2.3 million, 2.4 million for both acquisitions, but they did add two new dots to our footprint in North America.

[Scott Schneeberger:]

And just to be clear the one that you did in the calendar final fiscal fourth quarter, remind us what that was, was that previously announced or not?

[Charles Barrantes:]

We announced it in the last third quarter results of the subsequent impact.

[Scott Schneeberger:]

Okay.

[Charles Barrantes:]

[Multiple Speakers] it was ramped [ph] trading in the Boston area [Multiple Speakers].

[Scott Schneeberger:]

Yes, I just wanted to be clear on that. Chuck while I have you there the -- Ron said ForEx should not be an issue and that's obviously assuming things stay as they are in fiscal '17 versus '16, and I noticed the line in the guidance and the press release alluding to that. So is that the way you're looking at it that it should be relatively flattish year-over-year and a non-issue if things stay the way they are?

[Charles Barrantes:]

We are looking for the FX rate overtime because it's around to $0.75, $0.76 now, but all indications certainly from what we hear in Australia that might go down a little bit, so we believe that it should end up comparable in fiscal year '17 compared to fiscal year '16 which is somewhere around $0.73.

[Scott Schneeberger:]

And then just a couple more from me, I heard one of you mentioned natural resources has been minimized in Asian operation at Royal Wolf, could you just speak a little bit maybe some mix percentages and a little bit more elaboration on that business there and feel free to also expand to areas that you're building? Thanks.

[Ronald Valenta:]

So, our leasing revenues year-over-year are half of what they were in the preceding year, and I think we alluded to the fact that it was 12%. And then this year we are anticipating less because of course of the run rate has declined significantly. So, in the current fiscal, we would anticipate it to be less than 12% and possibly in the high-single digits, unless clearly energy returns in some form or fashion. But right now, we don't really see it. Though we certainly think we're at a trough and we're optimistic, it's not in our projected results. And then in terms of the core business, we continue to drive good growth in our -- in the core business, pretty much across the board. There's a little blip here and there, but generally speaking, the core business, the container business has been very strong as well as the pipeline for transactions and then we've also coupled that growth with Greenfields and through the experience of our current team in North America, and those have been very profitable very quickly, historically Greenfields have taken two to three years of breakeven, and our team has been able to do it on average in around six months. So the Greenfields have also been combined with everything else, a part of that growth trend.

[Scott Schneeberger:]

And did I hear -- and I may have heard it wrong, I'm presuming that North American non-res is looking nice and continues to look nice. Did I hear you mention and it might have been in the Asian operations, a bit of softness in construction or did I mishear?

[Ronald Valenta:]

No, we didn't say anything about softness. The core business in North America is doing really pretty well, really more than offsetting the decline in the portable liquid containment business. So no, no, we haven’t seen the softness in construction in North America.

[Scott Schneeberger:]

In Asia that was [Multiple Speakers].

[Ronald Valenta:]

For Asia Pacific, reasonably our [Multiple Speakers] in Asia Pacific we'd always felt we've been underweighted actually in the construction where, in past history North America has probably been over-weighted to construction. We've never quite had that problem in Asia Pacific and it’s actually inverse to some extent. We think we actually should have more capital deployed in that sector.

[Scott Schneeberger:]

And then lastly could you speak to sales of equipment, what you've been seeing off late and how we should think about that as we look out into fiscal '17 and just kind of the activity on that front? Thank you.

[Ronald Valenta:]

Yes so on the sales side of equipment on the container – I will answer it in two ways on the container side, we continue to see healthy margins and we're not anticipating anything different in either of the venues. And then every once in a while we've a large one off predominantly in Asia Pacific to a logistics company which is generally small margin. We generally don't like to do it but when it's an existing customer and it's somewhat of a requirement to maintain their ongoing leasing business we'll do that. We're not projecting any large one offs this year, again it's hard to project as it is customer driven. So, in summary we would anticipate similar margins on the container sales side in both venues and we're not at this point seeing any large one offs, low margin one offs in the freight sector in Asia Pacific.

[Operator:]

Our next question comes from the line of [Tom Riepenhoff] of CORE Partners.

[Unidentified Analyst:]

Can you remind us if you have any operations in Louisiana and what you're seeing there given the flooding?

[Ronald Valenta:]

Yes we don’t have an overly large presence there so nothing really would happen in there in terms of demand would significantly move up the needle for us so there is a pickup in volume but based just on the size of our fleet would not be a material positive effect for us.

[Unidentified Analyst:]

Got it, so you at are not able to move fleet from Texas or other states in the…?

[Ronald Valenta:]

Yes, the problem is, is how are they going to need it and if the cost to move in is worth it so unless the long-term demand and something more likely than that we would not do.

[Unidentified Analyst:]

Got it, and I think you sort of partially answered that question but just wanted to ask one more time just to sort of make sure. So when you think about your end-markets outside of the oil and gas end-market. Are you seeing any indications of softness or anything that is even mildly concerning and when you think about the trends that you just reported just kind of curious whether those trends persisted going into August and September?

[Ronald Valenta:]

Yes I think everything is reasonably strong I think the only variant year-over-year is on the retail side, which is what we are in now and so the largest retailer in North America would be Wal-Mart and they have altered their ordering process and there is some positive I think negative impact to in one of those volume with Wal-Mart during the season where you should see sharpness of term and rate and so they are going through their ordering change that historically they have never done, so we would anticipate some decline there I think we can certainly offset that with other volume but I think that's the only material change in any of those sectors year-over-year would be retail more specifically Wal-Mart.

[Unidentified Analyst:]

And so what exactly are they doing compared to last year in other words if you are not seeing as much volume since last year are they just going to other competitors or just doing other stuff?

[Ronald Valenta:]

Yes so they -- no, and I think everyone is going be impacted to some extent, some more than others based on where they are but where the ordering was centralized in the past because of a such a small line item for Wal-Mart that's -- they sort of worked down their P&L and so now this miscellaneous charts down a focus pointed for Wal-Mart and so they have now hired an outside firm to manage their ordering on a centralized basis so it's very automated real active bidding process, the service levels are higher they were pretty good this year I think provided because their terms are shorter. And then the rates are actively bid so the local store manager is really not involved in the process spending more and it's already centralized process so that we've already seen in the short-term where ordering begins pretty in August that is materially lower by Wal-Mart, as a whole versus preceding years. So, I think everyone in those business would Wal-Mart will be impacted negatively to some extent.

[Unidentified Analyst:]

Got it, and actually speaking retail just kind of curious and maybe this is not very relevant for North America and maybe more relevant for Australia I am not true if it's relevant there either but just want to make sort of sure I have a question. As far as the engine chopper 15 filing and sort of some of the destructions in the U.S. and probably in other geographies. It is what impacting your business at all is like -- is there sort of any relationship between that sort of industry and we will be investing going?

[Ronald Valenta:]

So we had not to say impact to our business.

[Unidentified Analyst:]

Okay. And I guess the other question, last question as far as Australia is concerned, there's been talk of a large infrastructure sort of spending boom and that has been going on for a couple of years. Have you seen like any of that, and I'm talking about non-residential sort of infrastructure type spending, have you seen any of that sort of starting to materialize or is that still supposed to be maybe happen in the future and sort of on the flip side of that as far as the residential market has been very strong, are you guys seeing any softness there at all?

[Ronald Valenta:]

Yes, we have not seen any material bidding or movement in that regard as yet, no.

[Unidentified Analyst:]

And I apologize, one last one. If you can just sort of talk about here in North America maybe try to differentiate between the storage container business versus office containers versus modular buildings and sort of the other sub-categories and whether you are seeing anything different in any of those?

[Ronald Valenta:]

Yes, so I think on the storage container side we continue to see good growth opportunities both through the acquisitions where we're able to add more product reps than what they've had previously, we're able to capitalize the business better than the predecessor so those are always positive. Our Greenfields are profitable within the six months which is somewhat unheard of in the sector, but again I'm going to give all the credit to the operating team to be able to deliver those kinds of results, so those are most positive. In terms of the ground level offices we don't seem to be able to build them as fast as they're going out, so there are pockets of really strong growth and then just normal growth. And then as it relates to modulars, we have seen a better utilization, so we've seen an uptick when you see our -- potentially that's coming out shortly and be files you'll see an uptick overtime on both hue and rate which is positive and then I would say, the negative that offset that, the mobile offices are a bit soft as more people are moving into the GLOs and just to let you know the product that has wheels of one dozen so the ground level stuff has greater appeal in some sectors and then lastly clearly the frac gains for the containment units who make utilization of our historic lows and there's not enough demand in the other sectors, so anything solvent or liquid related there's not enough demand in those sectors to offset the size of oil and gas sp there we are at historic lows at utilization the fleet has to be well maintained again we continue to drive both our safety and service levels to what we think are best-in-class in the sectors, we are in -- basins I am sorry which are Eagle Ford and Permian, so we're just waiting for some return to whatever new normality is, so those would be the broad based products and how we view them and what I would view as a balanced view.

[Operator:]

Our next question comes from the line of Zack Silver of FIRE Capital.

[Zack Silver:]

I just wanted to ask the question regarding sensitivity in the oil and gas area. Other than price, in other words you've tapped it down, you're at the trough, the opportunity appears to be significant, obviously if the price ultimately begins to get better, are there any other things that we should be looking at relative to new investments other than the price associated with current oil?

[Ronald Valenta:]

So, yes so price was certainly one indicator, the other one that we find to be most reflective of this one is the oil rig count, specifically in the basins in which we're in. So, if you're able to get datapoints on how the Eagle Ford and the Permian are doing in terms of rig count, that's usually a precursor to where things maybe going so those have been the two, the metrics that I would use if I were looking as an investor is again not only the price of oil but the rig count specifically in the basins, we are in other basins but those are -- where the majority of our volume come from would be the Permian and the Eagle Ford.

[Operator:]

Our next question comes from the line of Brian Gagnon of Gagnon Securities.

[Brian Gagnon:]

A couple of questions, if you're in 43 of the top 100 MSAs now, how many do you anticipate you can get into this year and then what's your five year outlook for penetration into this MSAs?

[Ronald Valenta:]

So, I would say we want to say consistent to what we've been historically doing. So, we would enter new markets either through acquisitions, and/or through Greenfields, we would only do Greenfields when we thought we would be at breakeven or profitable within a short order and deploy fleet there. So, to answer your question more specifically if we included those two ways or means if you will to add docks I would say on average it'd be three to five per year. And I would say that we have tried to stay consistent to that over the next time as well.

[Brian Gagnon:]

You're generating a lot of operating cash flow and is the plan to still continue to pay down debt in Australia and invest in North America at this point?

[Charles Barrantes:]

That pretty much is in fact -- Brian good morning this is Chuck. Yes the plan in Australia is to continue to pay down debt here in North America, yes we have a better pipeline for acquisitions to continue to look for opportunistic accretive acquisitions and to at least minimally invest into the organic fleet so that we expect our net fleet expenditures fiscal '17 to be a little bit lower than fiscal year '16, that pretty much is the game plan. And if we don't find opportunity we will also be levering North America.

[Brian Gagnon:]

Okay. In Australia you've got a new management team on the ground or at least a new CEO, what do you expect them to be doing differently than under Bob's tutelage?

[Charles Barrantes:]

Well I think first of all in the transition -- excuse me, we have the personnel side, so and he has always been in the system for a little over three years and so we want it to be a natural transition which I think it has but there's still someone new for them to report to. So, there's some of that going on, we've shifted responsibilities within the group and so some are taking more than others -- and others less, so there's some shifting going there, so these are all things that are happening behind the scenes that are not immediately reflected in the numbers. I think there are some marketing initiatives digital and alike that we have wanted see the Australians do which they have now fully embraced and they are doing. So, I think in summary from an operating and personnel perspective a lot of things are changing, though they may not be obvious fairly to the outside shareholder. But the focus is really today is on operations and improving what they are doing. And clearly the leader but we still think there is room to move there and we think the new management team will be more open to more aggressive rate increases potentially. But I think it's really going to be a year of transition and improving upon what we have done in the past, especially in the technology part of the business. And if we can achieve that and we often further delever the balance sheet then I think it's going to be certainly a most positive year for them.

[Brian Gagnon:]

Okay, great. And then last question, in the oil and gas sector, can you give us some anecdotal information about what's been happening on the competitive front for your main competitors, whether it's price or what their plan is to hold what you are seeing?

[Charles Barrantes:]

Yes, so I don’t think we have the full complement of competitors that we've had before either they are not there playing in those two basins anymore, or they have cut their costs so severely that they have potential service and safety issues. We continue to invest in safety and service and we do feel, and of course it is a biased hue that we do have the best service now in those basins and safety and we think it is supported by historical facts, which is what we present to our current or new customers that we are trying to add to the fold. So, I think in the long-term Brain, we are in a great position when things turn. I think in the short-term there is always going to be some real competitor that comes in at some price that can't beat the -- that is really lower than cost if you were to maintain the safety and service levels we have and every once in a while a customer we will buy it on that and then the business eventually comes back to us. The rig count has gone up slightly in the Permian in the last 30 to 60 days. We haven't seen any meaningful add on there. We again just continue to see and move a step forward. We are doing a little bit more with a customer or adding a customer and then having another customer sort of back off volume. So it's still one step forward and one step back. And I don’t think, we have anything, any material positives although we continue to keep our nose down and providing the best in class safety and service, certainly with a view that at some point things will come to whatever the new normal is, though that we don’t have a clear indication of whether when and where that is as everyone else does.

[Brian Gagnon:]

Okay, Chuck what was the EBITDA margin on your long-term business this quarter?

[Charles Barrantes:]

I will tell you in the quarter…

[Brian Gagnon:]

And while you are doing that, Ron if you wanted to add another crew to the long-term business how long would it take you to get them up and running and being as productive as your new sea crew?

[Charles Barrantes:]

Yes, Brian, it's 29%.

[Brian Gagnon:]

Thank you.

[Ronald Valenta:]

So, the first thing we would do Brain is we would have our guys work a significant amount of overtime before we'd add people and these guys are used to working seven days, 12 hours, so we'd probably increase their overtime maybe not to that extent but that would be our first push so that we wouldn’t lose the volume. And then I think it would probably take up to 90 days to staff up materially after that and add additional crews, and I think the reason being that so many people have left the basin so there were a lot of transplants that came in and then when the push happened those that clearly live there or grew up there are still there and any of the incremental labor is gone to other places so it sounds like unlike construction right now a lot of people are having a hard time finding construction workers and the reason is because after the downturn those people left and found new professions and so I think if you looked at the construction sector today in North America you'll find that there's a big workforce void and that's because people have wandered off, they do have to make a living so they have wandered off into other fields. So I think we find that same thing, I think we'd be hopeful again in the short-term that within 90 weeks we could start adding crews but again initially we fill it with simply the people we have now and a lot of overtime.

[Operator:]

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

[Ronald Valenta:]

I would like to thank all of you for joining our call today. We appreciate your continued interest in our company General Finance Corporation and we look forward to speaking with you next quarter. Have good week.

[Operator:]

Thank you ladies and gentlemen. This does conclude today's call. You may now disconnect.