General Finance Corporation
Q4 2014 Earnings Call Transcript

Published: 8 Sep 2014

[Operator:]

Welcome to General Finance Corporation’s Earnings Conference Call for the Fourth Quarter and fiscal year ended June 30, 2014. Hosting the call today from the Company’s corporate offices in Pasadena, California are Mr. Ronald Valenta, President 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 1.30 PM Eastern Time. At this time, all participants have been placed in a listen-only mode and the floor will be opened for your questions following the presentation. [Operator Instructions]. It is now my pleasure to turn the call over to Mr. Chris Wilson, Vice President, General Counsel and Secretary of General Finance Corporation. Please go ahead Mr. Wilson.

[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, market 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 from Australian natural resources industry or the U.S. construction or oil and gas industries or a write-off of all or other part of our goodwill and intangible assets. These involve risks and uncertainties that 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 about these risks, please see the Risk Factors section of our prior 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 with these non-U.S. GAAP measures are in our earnings release and will be included in our Annual report on Form 10-K. And now I turn the call over to Ron Valenta, President and CEO. Ron, please go ahead.

[Ron Valenta:]

Thank you Chris. Good morning and thanks for joining us to discuss General Finance’s results for the fourth quarter and fiscal year 2014. I’ll begin with a brief discussion of our operations and then provide for our outlook for fiscal year 2015. Our CFO, Chuck Barrantes will then provide a financial overview and following his remarks we will open the call to your questions. This past fiscal, fiscal year 2014 was another exceptional year for General Finance. Our continued strong operating momentum led to the best annual performance in our history. We posted record revenues, adjusted EBITDA and net income for the fiscal year and achieved results that were within the range of the financial guidance that we provided at the beginning of the fiscal year. We are today successfully executing on our strategic initiatives to expand our container fleet as evidenced by our overall lease fleet growth of 14% in units for the year. Additionally, we raised our prices across most of our product lines, while at the same time increasing our already healthy average utilization rates. We continued our strategy of supplementing our organic growth with accretive acquisitions. We've completed seven acquisitions during the year totaling nearly $120 million, two in Asia Pacific and five in North America, which as you know, included the acquisition of Lone Star Tank Rental, Inc. for approximately $102 million which we closed on April 7, 2014. With the acquisition of Lone Star, we are well positioned to capitalizing the growth opportunities in our Country’s key energy producing regions and we are very excited to be able to expand our fleet of portable liquid storage tank containers and provide additional value added services to those tank customers. The acquisition add substantial scale to our North America operations which will enable us to continue to build out our portable services platform, driving increased profitability and attractive shareholder returns. Additionally subsequent to this fiscal year end, we acquired a portable storage container business in Texas for just over $5 million. Now turning to our operating results. Our growth during the year was led by another very strong performance in North America where our leasing operations grew revenues by 45% and adjusted EBITDA nearly doubled. These results included one quarter’s worth of operations from Lone Star, which again we acquired in April of this year. Even without the inclusion of Lone Star, our North American leasing operations grew its revenues by 25% for the year driven by strong growth and demand for all of our key container based products, which include portable liquid storage tank containers, portable storage, and office containers. The significant increase in adjusted EBITDA was primarily driven by the inclusion of results from Lone Star as well as by strong lease fleet utilization, a 30% increase in the average number of units on lease and improved lease rates across most product lines of Pac-Van. Our North American lease fleet grew by 41% year-over-year to just over 21,200 units with virtually all the growth occurring in our container product lines. Our frac container fleet has grown over 5.5 times in the last 12 months to just over 3200 units. Two thirds of its growth it was from the Lone Star acquisition and the other one third was from organic growth. Average fleet utilization of Pac-Van 77% for the year, driven by continuous strong utilization across most product lines particularly in office containers and portal liquid storage tank containers where we experienced 83% and 86% average utilization rates respectively. We continue to maintain a very high utilization of our fleet of liquid storage tanks where we ended the year with a utilization rate of 89% in North America. We’re also pleased with our mobile office product line continues to experience steady improvement where year-over-year average utilization improved by approximately 200 basis points to 69%. Southern Frac, our manufacturer of portable liquid storage tank containers had a strong year, generating total standalone revenues of $48 million, up from 52% for the previous year. This is due primarily to increased demand at our North America leasing operations in the Texas market. The adjusted EBITDA on a standalone basis for the year improved dramatically to $7.2 million, up from $1.3 million last year. The improvement in adjusted EBITDA was due to a combination of positive operating leverage associated with the higher revenues and efficiencies attained in the manufacturing process, including lower material costs. Turning to our Asia-Pacific subsidiary, this region is where Royal Wolf continued to benefit from its market leading position in Australia and New Zealand, its diverse customer base and its comprehensive product offerings across the wide range of industries. For fiscal year 2014, Royal Wolf recorded year-over-year revenue and adjusted EBITDA growth of 5% and 3% respectively. However we should look that it on a local currency basis. Accordingly on an apples-to-apples basis, revenues increased by 18% and adjusted EBITDA grew by 15%. In addition, average fleet utilization was a healthy 82% for the year. Royal Wolf continued to invest in ancillary fleet, particularly in portable buildings where an investment in eight portable tanks during the year helped drive an over 12% year-over-year unit increase in its product type. We also continue to see demand for our portable buildings at major urban construction sites throughout both countries where we supply a number of products including offices, lunch rooms, first-aid rooms, restroom facilities and protected walkways. We are waiting for these release container based solutions due to their speed of deployment, stackability, security strength and their reasonable cost. For the year, the overall leased fleet grew by 3% to over 40,000 units and the average number of units on lease increased by 6%. Royal Wolf did complete two tuck-in acquisitions during the year, one in Australia and one in New Zealand where we’ve been expanding to meet increased demand across the country. And in New Zealand, we continue to experience strong results in Christchurch with a where the multiyear rebuilding effort is still in its early stages. Our new products are being well received. For example during this past year, we sold over 150 recently introduced low security prisoner accommodation cabins to the Victorian Department of Justice. In addition, our popular retail product has seen demand from the event industry where we are offering food and general merchandize kiosks. The Royal Wolf management team led by Bob Allan has done an excellent job delivering increased revenue growth and profitability in fiscal 2014, despite some uncertainty in their economy. Our highly diversified customer base across a wide range of industry positions us well for continued organic growth in fiscal year 2015. We can now turn to our company wide outlook. Looking ahead, we’re quite optimistic about our prospects for another strong performance in 2015 as well as in executing our objectives to drive growth. As in prior years, the Board of Directors of Royal Wolf has opted not to provide specific financial guidance for fiscal year 2015. However for a frame of reference Australian analysts covering Royal Wolf have published revenue estimates for fiscal 2015 ranging from A$173 million to A$180 million and a consensus estimate for a low double digit increase in adjusted EBITDA in fiscal year 2015 from fiscal year 2014. For our North American leasing operations, we expect significantly improved revenues and adjusted EBITDA in fiscal year 2015 as compared with fiscal 2014 as the financial results from the Lone Star acquisition will be included for a whole year and Pac-Van is expected to deliver another year of double digit growth. Overall, assuming the Australian dollar averages $0.90 versus the U.S. dollar, we are comfortable that consolidated revenues for fiscal year 2015 will be in a range of $320 million to $335 million and the consolidated adjusted EBITDA will increase 28% to 33% in fiscal year 2015 from fiscal year 2014. Similar to the guidance that we gave you last year, this outlook is not taken into account the impact of any acquisitions that have occurred or may occur in fiscal year 2015. At this point in time, I'd like to turn the call over to Chuck Barrantes for this financial review.

[Chuck Barrantes:]

Thanks, Ron. We will 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 a substantial amount of information about our company some of which we will discuss today. Turning to our financial results, I will first discuss our fourth quarter results and then our full fiscal year 2014 results. Total revenues were $90.1 million in the fourth quarter of fiscal year 2014, a 39% increase over the comparable period of the prior year and included $14.7 million from Lone Star. Leasing revenues increased by 65% to $51 million for the quarter from $30.9 million for the fourth quarter of 2013 and comprised 61% of total non-manufacturing revenues in the quarter compared with 52% in the same period last year. Non-manufacturing sales revenues increased by approximately 16% to $32.4 million in the quarter compared to $28 million in the fourth quarter of the prior year. The increase in non-manufacturing revenues in the fourth quarter of 2014 was driven by increases in both the North American and the Asia-Pacific leasing operations where revenues increased by 95% and 14% respectively. In our North American leasing operations, the increase in revenue was driven by the inclusion of Lone Star and a 30% increase in leasing revenues and a 7% increase in sales revenues at Pac‐Van. The increase in leasing activity at Pac‐Van was due to improved demand across most sectors particularly in mining and energy, commercial construction and industrial. The Asia-Pacific areas increase in revenues was driven by a 19% increase in sales primarily to the government and transportation sectors and an 8% increase in leasing revenues driven by growth in the resources and construction sectors. On a local currency basis, total revenues in the Asia-Pacific grew by 21% and leasing revenues increased by 15% between the periods. At our North American manufacturing operations, Southern Frac standalone revenues increased by 41%, benefiting as Ron mentioned earlier from increased demand at our North American leasing operations in the Texas market. Consolidated adjusted EBITDA was $23.4 million in the fourth quarter of 2014 compared with $13 million in the prior year period an increase of 80%. Adjusted EBITDA margin as a percentage of total revenues is 26% for the fourth quarter of 2014 compared to 20% in the prior year’s quarter. Adjusted EBITDA for our North American leasing operations was $12.4 million in the quarter, more than triple the $3.9 million generated in the prior year’s fourth quarter. The large increase in adjusted EBITDA was primarily due to the inclusion of results from Lone Star but also was driven by strong results of Pac-Van, which experienced a 32% increase in the average number of units on lease in conjunction with improved lease rate utilization and lease rates across most product lines. Royal Wolf’s adjusted EBITDA for the quarter increased by 16% to $12.8 million and was driven by the previously mentioned increased sales revenue as well as an increase in leasing activity from the resources in construction sectors. Southern Frac’s adjusted EBITDA on a standalone basis was $3.3 million for the quarter as compared to only $800,000 in the prior year’s fourth quarter. The improvement was primarily due to the increased revenues from units sold to our North American leasing operations as well as efficiencies attainted in the manufacturing process. Interest expense for the fourth quarter of 2014 was $4.7 million, compared with $2.4 million for the fourth quarter of last year. The high interest expense was primarily due to higher average borrowings in both the Asia-Pacific and in North America as well as a higher weighted average interest rate in North America, due primarily to the issuance during the fourth quarter of our new eight and an eighth [ph] senior notes and secured term loan with Credit Suisse at the corporate level, both of which bare higher average interest rates than that of our North American senior credit facility. Net income attributable to common stock holders was $816,000 or $0.03 per share in the fourth quarter of 2014 versus $156,000 or $0.01 per share in the fourth quarter of 2013. The fourth quarter of 2014 includes a reduction of $892,000 or $0.03 per share for the fourth dividend paid on our Series C cumulative preferred stock. Now turning to our financial results for fiscal year 2014, total revenues were $287.1 million, an increase of 17% over $245.5 million from fiscal year 2013 and included $14.7 million in revenues from Lone Star which we previously mentioned. Leasing revenues increased by 22% to $151 million for the year from a $123.4 million for fiscal year 2013 and comprised 56% of total manufacturing revenues for the year. This compares with 55% for fiscal year 2013. Non-manufacturing sales revenues increased by 13% to $116.4 million for the year from a $103 million for fiscal year 2013. The increase in non-manufacturing revenues in fiscal 2014 was driven by increases at both our North American and Asia-Pacific leasing operations, where revenues increased by 45% and 5% respectively. The growth in North America was a result of the inclusion of Lone Star, which we mentioned for one quarter as well as an increase in both leasing and sales revenue at Pac-Van of 27% and 21% respectively. The increased revenues at Pac-Van were due to improved demand across most sectors but particularly in mining and energy commercial, construction, industrial and retail. On a local currency basis, Royal Wolf’s revenues in Asia-Pacific increased by 18%, driven by growth in the transportation of government and resources sector. Our North American manufacturing operations, Southern Frac had standalone revenues in fiscal year 2014 of $48.3 million, an increase of 52% from the prior year which included a result from the date of acquisition were October 1, 2012 or nine months. Approximately 59% of total revenues were from inter-company’s sales of Frac tanks sold to our North American leasing operations and which were eliminated in the Company’s consolidated results. This compares with inter-company sales of approximately $40 million of total revenues in fiscal year 2013. The growth in inter-company sales was driven primarily by increased demand in the Texas market. Adjusted EBITDA was $69.1 million in fiscal ‘14 compared with 53 million in the prior, an increase of 30%. Adjusted EBITDA margin as a percentage of total revenues was 24% in fiscal year 2014 as compared to 22% for fiscal year 2013. Results from both years include transaction and acquisition related costs, just over $1 million for each year. Adjusted EBITDA for fiscal year 2014 increased at both our North America and Asia-Pacific leasing operations by 93% and 3% respectively when compared to fiscal 2013. North America leasing operations adjusted EBITDA margin increased 27% from 20% in the previous year. Royal Wolf’s adjusted EBITDA margin declined modestly to 27% from 28% in the prior year, primarily due to the inclusion of approximately A $11 million or A8 million, A$12 million in lower margin sales to our freight logistics customer. Southern Frac generates 7.2 million adjusted EBITDA in fiscal year 2014 on a standalone basis, prior to any inter-company adjustments. This compares to adjusted EBITDA of 1.3 million for the prior year, which only included nine months of ownership. Interest expense for fiscal year 2014 was $12 million compared with $11 million for the prior year. The higher interest expense reflects higher average borrowings in both North America and Asia Pacific, substantially offset by lower weighted average interest rates in both geographic venues as well as the weakening Australian Dollar relative to the U.S. Dollar in fiscal year 2014 versus 2013. Our effective tax rate was 43.4% in fiscal year 2014 versus 41.8% in the previous year. The increase in the effective tax rate in fiscal year 2014 was due primarily to the effect of the increase in the federal statutory use from 34% and 35% as a result of our increased domestic taxable income. Net income attributable to common stockholders was 3.9 million in fiscal 2014 or $0.15 per diluted share, compared with 3.5 million or $0.16 per share in 2013. The fiscal year 2014 includes a reduction of 3.5 million or $0.14 per share for the dividends paid in our Series C cumulative preferred stock. For the fiscal year 2014, we generated free cash flow before fleet activity of $31.9 million as compared to $22.6 million in the prior year, an increase of 41%. As a reminder we define free cash flow to be cash from operating in investing activities adjusted for changes in non-manufacturing inventory, net fleet, capital expenditures and business acquisitions. For the fiscal year 2014, the Company invested a net $65.8 million, $44.3 million in North America and $21.5 million in Asia-Pacific in the lease fleet as compared to $47.6 million in net fleet investment in fiscal 2013 which consisted of $24.6 million North America and $23 million in the Asia Pacific. Turning to our balance sheet, at June 30, 2014 the Company had total debt of $302.9 million and cash equivalents of $5.8 million with a net leverage ratio of 4.3 times on a historical basis and 3.4 times with the pro forma effect of Lone Star for the full year. This compares with a $163 million and $6.3 million at June 30, 2013 respectively, which is the net leverage of three times. As we've stated many times before, we are very comfortable with a net leverage ratio of up to 4.5 to 5 times. Additionally, we want to mention that we were very pleased with our recent capital raise of $72 million in our public senior notes which provides us the financial flexibility to continue pursuing our growth strategy. Receivables were $61.5 million at June 30th as compared to $34.4 million at June 30, 2013. Days’ sales outstanding in receivables were 43 and 67 days for Asia Pacific and North America leasing operations respectively compared to 44 and 50 days at June 30, 2013. At June 30, 2014, our North American leasing operations had $77.8 million of availability under its $200 million credit facility and Royal Wolf had approximately $25 million A$25 million or roughly $23 million of availability under its A$175 million credit facility. As Ron mentioned earlier we expect to continue to showing improved results on a consolidated basis driven by execution of our growth initiatives, which include the expanding our container lease fleet. 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). Our first question comes from the line of Sal Vitale with Sterne Agee.

[Sal Vitale:]

Just picking off with a quick modeling question. I look at the effective tax rate -- if I’m looking at this right to see 46.8% at the June quarter, which is up pretty significantly I think from the prior quarter sequentially. How do you think about that going forward?

[Chuck Barrantes:]

What it is Sal is that our larger domestic taxable income increased so that we now went to a tax rate from 34% to 35%? This is Chuck. And under the current accounting announcements, you not only provide that rate on the current year taxable income but also on deferred taxes previously provided. So the effect was really over 2% to the effective tax rate. So that’s for this year only. So going forward it'd be really closer to the 41%-42% that we had initially.

[Sal Vitale:]

So going forward closer to 41-ish, 42-ish…

[Chuck Barrantes:]

I would -- from my perspective would give use the same rate, 41.8%, 42%.

[Sal Vitale:]

And then really nice results on Pac-Van. I’d like to point, I guess the question is do you provide any breakout of what the Lone Star EBITDA was or how do we think about that?

[Chuck Barrantes:]

Yes. We will provide a breakout, we do present an investor presentation that we will be filing later for -- which you can look at. But Lone Star’s adjusted EBITDA for the fourth quarter was $7 million.

[Sal Vitale:]

Okay, $7 million for the fourth quarter.

[Chuck Barrantes:]

I mean fiscal year ’14.

[Sal Vitale:]

Okay. And just curiosity, what was the prior quarter?

[Chuck Barrantes:]

The prior quarter?

[Sal Vitale:]

The third quarter for Lone Star or the March quarter rather.

[Chuck Barrantes:]

Well, we didn’t have Lone Star in the March quarter.

[Sal Vitale:]

Right, okay. I was just wondering, just for comparison sakes, see what the growth rate was or even if you could provide any color on the year…

[Chuck Barrantes:]

You know Sal, we have to be a little careful on the growth rate. I mean, oil and gas activity in Texas is very frothy. As we know it’s a seasonal business. So it’s not a matter of taking that EBITDA times four. And as you well know, Lone Star, a very good company, but it requires an infrastructure build out, requires a lot of attention. So we are going to be very careful on how we present our guidance and forecast for Lone Star going forward [multiple speakers] at a time here.

[Sal Vitale:]

And then -- so you said $7 million was the adjusted EBITDA number for 4Q for Lone Star. Can you provide any color on what the top line was?

[Chuck Barrantes:]

$14.7 million.

[Sal Vitale:]

Okay, alright, that was already included, right? Okay, very good. And then just switching over to your availability, I know you mentioned some figures. Did you provide Pac-Vans availability under the revolver?

[Chuck Barrantes:]

At Lone Star are a combined facility is with Wells Fargo and their availability is a little under about $78 million. $77.8 million.

[Sal Vitale:]

And then you mentioned I think one acquisition for $5 million. Was that executed or is that completed prior to the close of the June quarter?

[Chuck Barrantes:]

No, that was completed right after the end of the fourth quarter.

[Sal Vitale:]

So just on your guidance, the effect of that…

[Chuck Barrantes:]

It does not include that acquisition, no.

[Operator:]

Our next question comes from the line of Brian Hollenden with Sidoti & Company.

[Brian Hollenden:]

I wanted to ask you about the receivables, the days outstanding were 67 in North America versus 50 in the prior year. Can you just talk about what led to the increase or is that more a mix based on incorporating Lone Star? Can you just help on that a little bit?

[Ron Valenta:]

That was what it is. Oil and gas receivables, fortunately take a little bit longer. That’s of nature of the business and that’s the reason for the increase in the DSO.

[Brian Hollenden:]

And then if I could ask one follow up on Lone Star. Can you just talk a little bit -- you had just alluded to un-seasonality. Which quarters can we think about in terms of the stronger quarters versus a little bit more weaker quarters?

[Chuck Barrantes:]

We would think the holiday season -- so that the end of the second quarter, into our third fiscal quarter will be the slower quarters. So first and fourth should be the strongest and then halfway through the second quarter well into the third quarter would be softer than the other two quarters.

[Operator:]

(Operator Instructions). Our next question comes from the line of Tom [indiscernible] Partners.

[Unidentified Analyst:]

I was wondering, can you provide any additional information regarding whether there were any M&A related expenses in the quarter and can you talk -- in each one of your areas, a familiar Pac-Van, Lone Star, if there are kind of -- what you see -- is anything that was one off or may not be repeating either positively or negatively in the quarter.

[Chuck Barrantes:]

You are talking about for the transaction acquisition related expenditures?

[Unidentified Analyst:]

Yes, in the first question.

[Chuck Barrantes:]

Well, as you well know, M&A activity is not necessarily consistent, it can vary from quarter-to-quarter. I can tell you that the vast majority of the M&A transaction expenses that were incurred in the fourth quarter related to Lone Star acquisition and that would be -- well, probably in the vicinity of $700,000, $800,000 I would think, that flow full into the quarters. So comparable year-to-year fiscal ’13 2014, it was over $1 million but the vast majority of the expenses flowed into Q4 in the current fiscal year as the result of the Lone Star acquisition and we don’t -- we can’t predict how it would flow going into the future. It depends on the level of M&A activity but suffice to say we are an acquisitive company. So you can assume the transaction acquisition related costs are going to be an ongoing expense here.

[Ron Valenta:]

And Tom, this is Ron. Just to give you a little color on the M&A. So we have Jeff Kluckman who we’re very glad to have and he’s got a very rich history in acquisitions. So a lot of the acquisition costs are born into our normal operating cost because it’s a fulltime effort on our part. So the cost that Chuck had alluded to are generally when we don’t use bankers or brokers on our side, but generally it has to do with due diligence. So in the case of Lone Star, because of their size we had to get audited statements for them, which they didn’t have. So they were three balance sheets and two P&Ls that had to be audited. There were some qualitative earnings where there is definitely some environmental works. So anything that requires an outside professional, for example in the case I gave the audits, we would hire people do to that. But generally speaking, the bulk of the work, especially from an operating and a legal perspective, both in House Council Chris, and Thomas Call [ph] and Jeff generally do with their teams. As relates to your second series of questions and one-off. So other than the acquisition explanation we gave to you on cost, I think the other one-off that you will see is we’re continuing to build out the Lone Star back office. A vast majority of that has been done as they had no systems or back office when we took over because they were part of a larger group. So we literally had to build -- physically build offices. They are headquartered today in Waxahachie, Texas with the Southern Frac back office. And so we still have more overhead cost to incur as it relates to not only build out of that office but the back office and then we have a couple more operating types that we'd like to add to that group. So we anticipate seeing more cost in the structure because it's not a sustainable structure as you see today. So there will be some more cost on the Lone Star side. Pac-Van continues to build the bench outs. So there will be some personnel cost there. And then lastly in Asia-Pacific, the Royal Wolf has been working on a branding campaign for a while. And we will continue to see more their new branding costs in that part of the world as they try to get their name out there more. So I would view all those as one-offs and we would hope within the next quarter or two that those costs aren’t built into the system and you wouldn’t see any more of it. But there is still from our perspective a bit more cost still there.

[Unidentified Analyst:]

Okay great. Just as a follow-up. The utilization rates seem to have climbed very nicely in Q4, leasing utilization. That’s why I was just wondering -- can we kind of expect higher numbers here, is that going to continue to bounce around a lot?

[Ron Valenta:]

Yes, I think we have seasonality to the container side and I think we’ll continue to see historically what we have always seen. So utilization space strong into the end of the calendar year and then at the beginning of the year that traditionally slows down a bit in North America as we’re in our winter season. Some of that is construction driven, some of that clearly will be energy driven where the activity really slows down considerably and then in the spring things pick up again. So I think we’re going to follow the normal patterns that this sector has always seen for the last few decades. I don’t think -- we’re not seeing anything that will be materially different than what we have been experiencing. So again I think you'll see a strong quarter and the quarter we’re in on utilizations and then we’ll taper off a bit near the end of the calendar year into the new calendar year, third quarter fiscal.

[Unidentified Analyst:]

Okay so, are you kind of saying you’re not really expecting -- an up-part of your Company strategy is to boost these things and utilization rates overtime and I'm just wondering if you feel like you’re on track. So am I misunderstanding where utilization rates are expected to go forward?

[Ron Valenta:]

So our optimal on average utilization rate we believe is to be 85%. So we’re tapping that 80% number in Australia, New Zealand. Asia-Pacific is the low 80s. So once you get the 85%, that’s optimal, optimal and things are pretty much hitting on all cylinders. I think today we boast the highest utilization in the sector. But we’re not at optimal. So 85% would be optimal and then again our job is to maintain utilizations if not increase them while we’re investing in the fleet from a capital expenditure standpoint. We have invested about $66 million in fleet this past fiscal, while we actually driven both rate and utilization offsets, a very positive testament to the operating team to not only invest those dollars but increase rate while you’re increasing utilization. So we do have some upside in utilization and we have a little bit more rate upside and we’ll continue to invest in fleet as we have opportunities to organically grow.

[Unidentified Analyst:]

Okay, if I guess one more is the -- do you expect going forward into next year here that you will continue to redeploy all your free cash flow into fleet expansion?

[Ron Valenta:]

Yes, we would expect first and foremost before we get any more leverage onto the balance sheet that we would expend and invest our free operating cash flow into fleet and/or acquisitions first and then if there is more opportunity, again we don’t expect if we buy at demand, then we'd start tapping the line if we found more opportunities in our free cash flow but clearly our discipline internally is to invest in free cash flow first. If we don’t find opportunities, then clearly we’ll de-lever but in first and foremost we’d like to reinvest all of our free cash flow that’s coming out of the operating units.

[Unidentified Analyst:]

Okay, great. Well it sounds like you’re optimistic about business. Thanks Ron.

[Ron Valenta:]

Very optimistic.

[Operator:]

(Operator Instructions) Our next question comes from the line of Sal Vitale with Sterne Agee.

[Sal Vitale:]

Hi, just a quick follow up on the EBITDA at the Pac-Van level. So I guess if I look at the standalone EBITDA for Lone Star, that’s about 48%. So is it just in terms of trying to strip that out and just looking at the core Pac-Van non-Lone Star numbers I get about 22% margin for Pac-Van. Is that a valid comparison or they are into companies that might complicate that? So in other words if I just say, overall Pac-Van revenue minus Lone Star and due to same on the EBITDA I get about 22% margin for Pac-Van non-Lone Star.

[Ron Valenta:]

That sounds about right. So it might be a little higher than that.

[Sal Vitale:]

Okay, that’s helpful. And then just on the corporate expense, I think it was about $2.1 million for the quarter. How do we think about that going forward? I think it was a little higher than prior quarters?

[Ron Valenta:]

A lot of that obviously was acquisition related. And so I were to forecast on ongoing corporate expenses into fiscal ’15, I would look at it as more like 4.5, 4.6, 4.7 type of range.

[Sal Vitale:]

Okay, so 4.6, 4.7 --

[Ron Valenta:]

Obviously not including any acquisition or any special project type of activities.

[Sal Vitale:]

Right and then beyond that is it fair to assume that’s pretty steady or does it go down a little?

[Ron Valenta:]

You mean after fiscal ’15?

[Sal Vitale:]

Right.

[Ron Valenta:]

I would think that where we’re going it’s not necessarily going to go down a little bit.

[Sal Vitale:]

Because as you acquire more you’re going to add more process -- ?

[Ron Valenta:]

Absolutely.

[Operator:]

It appears that we’ve no further questions at this time and now I would like to turn the floor back over to management for any additional and closing remarks.

[Ronald Valenta:]

Okay, I would like to thank all of you for joining our call today and for continued interest in our company, General Finance Corp. Thanks and enjoy your day.

[Operator:]

Thank you, this concludes today’s conference call. You may now disconnect.