General Finance Corporation
Q2 2015 Earnings Call Transcript

Published: 9 Feb 2015

[Operator:]

Welcome to General Finance Corporation’s Earnings Conference Call for the Second Quarter ended December 31, 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 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 with customers, declines in demand for our products and services from key industries such as the Australian natural resources industry or the U.S. construction or oil and gas industries or a write-off of all or 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 regarding these risks, please see the Risk Factors section of our periodic reports filed with the SEC and posted to our website 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 also discuss certain non-U.S. GAAP financial measures such as adjusted EBITDA. A reconciliation of how we define and arrive at these non-U.S. GAAP measures are in our earnings release and will be included in our quarterly report on Form 10-Q. And now I turn the call over to Ron Valenta, President and CEO. Ron, please go ahead.

[Ronald Valenta:]

Thank you Chris. Good morning and thanks for joining us to discuss General Finance’s results for the second quarter of fiscal year 2015. As in prior earnings calls, I will begin with a brief discussion of our operations and then provide an update on our outlook for fiscal year 2015. Our CFO, Chuck Barrantes will then provide a financial overview and following his remarks, we will open the conference call to your questions. We are extremely pleased to report that we have delivered yet another quarter of very strong performance generating record results. Our North American leasing operations were hitting on all cylinders and have exceeded our expectations for the first half of the current fiscal year resulting in our 19th consecutive quarter of year-over-year growth in total revenues and adjusted EBITDA. We continued to successfully execute on our strategy of expanding our container fleet while maintaining high average utilization rates and implementing rate increases across most of our product lines. We also continued our strategy of supplementing our organic growth with accretive acquisitions. Since the beginning of this fiscal year, we have completed five acquisitions of portable storage container businesses, four in North America and one in New Zealand investing approximately $36 million and adding six branch locations to our network of now over 60 locations in four different countries. Three of these acquisitions occurred since our last conference call in November. In December, we acquired a portable storage container business in Columbus, Ohio and one in Christchurch, New Zealand. In January, we acquired another portable storage container business with locations in the Austin and San Antonio markets of Texas. Our growth in North America continues to be driven by across the board strength in all of our product lines, but particularly from our container-based products. Revenues from our leasing operations more than doubled and adjusted EBITDA nearly tripled in the second quarter from the prior year’s quarter. We have grown our lease fleet in units by 57% over the last 12 months and our overall average utilization for the most recent quarter was 82%, up from 80% in the second quarter of fiscal year 2014. The financial contribution of Lone Star continues to far exceed our initial expectations as they post another very strong quarter in revenues and adjusted EBITDA. The balance of our North American leasing operations is also seeing broad based improvement in a number of key sectors including, commercial, mining and energy construction and retail and a standalone results of the best they have been since we have owned the business. Southern Frac, our manufacturer portable liquid storage tank containers also has had an exceptional quarter generating total standalone revenues of $13.1 million, more than doubling from the previous year. This was due to increased demand in our North American leasing operation and with external customers. Adjusted EBITDA on a standalone basis for the second quarter more than tripled to $2.8 million, up from $759,000 in last year’s second quarter. Turning to the Asia-Pacific region, Royal Wolfe was impacted by lower sales revenue during the quarter driven by one, a weaker Australian dollar relative to the US dollar, two, the final installment of a large one-off sale in last year’s second quarter and three, lower sales to the resources sector. We are experiencing some positive trends that are partially offsetting these decline in revenues. We are seeing higher demand in the construction sector and improved leasing activity at our customer service centers along the Eastern sea board. In addition, New Zealand remains strong. Our quarterly average fleet utilization rates were also quite healthy at 85%, up 100 basis points from last year’s second quarter. For the quarter, on a local currency basis, adjusted EBITDA was relatively flat with last year’s second quarter. However, in US dollars, adjusted EBITDA decreased by 8%. We continue to experience a shift towards a higher percentage leasing revenues which is positively impacting our margins. Our adjusted EBITDA margins increased by over 400 basis points in the quarter to 31%, up from 27% in the prior year’s quarter. In summary, with our continued company-wide focus on growing our container based leasing activity, our leasing volume today represents 70% of our non-manufacturing revenues for the quarter and our consolidated EBITDA margins increased to 31% from 25% in the second quarter fiscal year 2014. Now turning our company wide outlook. Looking ahead, despite the recent drop in oil prices and the ongoing strength of the US dollar relative to the Australian dollar, we remain optimistic about our prospects for a strong overall performance in 2015. Based on the year-to-date results our six month outlook for both of our geographic revenues and our revised expectations for a lower value of the Australian dollar versus U.S. dollar, we still remain comfortable that consolidated adjusted EBITDA will be at the high end of the range provided for in our fourth quarter and fiscal year 2014 earnings press release and conference call. At this time we are adjusting our consolidated revenue range to $310 million to $325 million driven largely by our expectations for the lower Australian dollar to US dollar exchange rate. This outlook does not take into account the impact of our current year acquisitions. We have been asked a lot of questions about the impact that the lower oil prices will have on our North American leasing operations, while it is too early to know the specific impacts I would like to share with you some of our current thoughts on the subject. Right after OPEC’s major announcement last Thanksgiving, we began reaching our customers in the oil and gas sector in order to get a sense of what they were planning going forward. While a number of our customers indicated that they would cut back on exploration CapEx, most indicated that they expected to maintain their production levels. Majority of our oil and gas business today is conducted in the Permian and the Eagle Ford basins, two of the lowest cost basins in the country and the vast amount of our business is geared towards production rather than exploration. And while breakeven economic analysis for our customers is well play-specific, we believe that production economics are still attractive for our customers. That being said, we have been asked by a number of our customers to give concessions on lease rates for our frac tanks. We are giving back some rate going forward, but we think that we are well positioned and better than others as a result of our very strong service and safety records that we have achieved with our customers. In addition, we believe that we will be successful in securing some new business from a number of customers that we have turned away earlier in the year when we were enhancing our infrastructure at Lone Star. And at that time, we do not want to take on that business that we felt we cannot properly service. So the short answer is yes, that our frac business which represents approximately 31% of our consolidated revenues will be affected by the lower oil prices. We do believe that there are a number of factors that are working on our favor to help soften the impact. So going forward, we likely will give back some of the excess performance that we have been generating but we still expect to generate results that are better than our initial expectations and we are quite optimistic about our long-term position in this sector. At this point in time, I’d like to turn the call over to Chuck Barrantes for his financial review.

[Charles Barrantes:]

Thanks, Ron. We will 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. 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 $88.7 million in the second quarter of fiscal year 2015, a 35% increase over the comparable period of the prior year and includes $17.4 million from Lone Star. Leasing revenues increased by 65% to over $57 million for the quarter from $34.5 million for the second quarter of 2014 and comprised 70% of total non-manufacturing revenues in the quarter. This compares 55% for the same period last year. Non-manufacturing sales revenues were [Indiscernible] million in the quarter, down from $28.4 million in the second quarter of the prior year. Total non-manufacturing revenues of $81.6 million in the second quarter of fiscal year 2015 increased by 30% from the second quarter of 2014 and was driven by increases in our North American leasing operations where revenues more than doubled and was partially offset by a 22% decrease in revenues at our Asia Pacific leasing operations. In our North American leasing operations, the increase in revenues was driven by the inclusion of Lone Star, as well as an approximately 40% increase in leasing revenues and a 73% increase in sales revenues at Pac-Van. The increase revenues was due to improved demand across the board, but particularly in the mining and energy, commercial, construction, retail and government sectors. The Asia-Pacific region’s 22% decline in revenues was driven by $8.2 million reduction sales due to several factors including the absence of a large one-off sale to a freight logistics customer that occurred in last year’s second quarter, slowing sales in the natural resources sector and an approximate 8% unfavorable foreign exchange translation effect between periods. On a local currency basis, total revenues in the Asia-Pacific declined by 15% and leasing revenues increased by 3% between the periods. At our North American manufacturing operations, Southern Frac standalone revenues more than doubled to $13.1 million. As Ron mentioned earlier, they benefit from increased demand at our North American leasing operations and from external customers primarily in the Texas market. Consolidated adjusted EBITDA was $27.7 million in the second quarter of 2015 an increase of 67% from $16.6 million in the second quarter of 2014. Adjusted EBITDA margin as a percentage of total revenues was 31% for the quarter compared to approximately 25% in the prior year’s quarter. Adjusted EBITDA for our North America leasing operation was $17 million in the second quarter, more than tripled of $6.1 million generated in the prior year’s second quarter. The large increase of adjusted EBITDA was primarily due to the inclusion of results from Lone Star, but also was driven by strong results of Pac-Van, which generated increase in adjusted EBITDA of 49% in the quarter based on a 44% increase in the average number of units on lease, improved fleet utilization and higher lease rates across most product lines. Royal Wolf’s adjusted EBITDA for the quarter increased by 8% to $10.2 million. On a local currency basis, adjusted EBITDA was down only 1% from prior year’s quarter. Southern Frac’s adjusted EBITDA on a standalone basis was $2.8 million for the quarter as compared to $759,000 million in the prior year’s quarter not only because of the increased revenue but also because of efficiencies obtained in the manufacturing process. Interest expense for the second quarter of 2015 was $5.5 million compared with $2.3 million for the second quarter of last year. The high interest expense was primarily due to average borrowings to both the Asia-Pacific and in North America and a higher weighted average interest rate in North America, due primarily to the issuance during the fourth quarter of last year of new 8.125% senior notes and secured term loan with Credit Suisse, at the corporate level both which bare higher average interest rates in that of our North American senior credit facility. The weighted average interest rate in North America was 5.4% for the second quarter of the current fiscal year versus 3.7% in the prior year’s quarter. In the Asia-Pacific the current period weighted average interest rate was 5.5%, down slightly from 5.9% last year. Net income attributable to common shareholders was $4.6 million or $0.17 per diluted share in the second quarter of 2015 versus 1.6 or $0.17 per diluted shares in the second quarter of 2014. Both periods includes a reduction of $920,000 for the dividends paid on our Series C cumulative preferred stock. For the first six months of fiscal year 2015, we generated free cash flow before fleet activity of $28.7 million, as compared to $15.7 million in the prior year, an increase of 83%. 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 real estate acquisitions. For the first six months of fiscal year 2015, the company invested a net $43.8 million, $36.5 million in North America and $7.3 million in the Asia-Pacific in the lease fleet as compared to $33.4 million in net fleet investment in the first six months fiscal year 2014. That would be $17.7 million in North America and $15.7 million in the Asia Pacific. Now turning to our balance sheet. At December 31, 2014, the company had total debt of $358.1 million and cash equivalents of $6.3 million with a net leverage ratio of 3.8 times on a historical basis and 3.6 times with the pro forma effect of Lone Star for the trailing 12 months. This compares with $302.9 million and $5.8 million at June 30, 2014 respectively, with a net leverage of 4.3 times on an historical basis and 3.4 times on a pro forma basis. Receivables were $65.8 million at December 31, 2014 as compared to $61.5 million at June 30, 2014. Day sales outstanding in receivables were 38 days and 67 days for the Asia-Pacific and North American leasing operations respectively which compares to 43 days and 67 days at the end of our year fiscal end. At the end of December, our North America leasing operations had $47.4 million available to borrow under its credit facility, and Royal Wolf had approximately 11 Australian dollars available to borrow under its 175 million Australian dollar credit facility. In January, our North American leasing operations amended its credit facility to among other things, increased the maximum borrowing capacity from $200 million to $220 million by adding a $20 million real estate sub facility which would able us to acquire real property that we deem strategic to our ongoing operations. 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 Sal Vitale with Sterne Agee.

[Sal Vitale:]

Good morning gentlemen and nice quarter.

[Charles Barrantes:]

Thank you, Sal. Good morning.

[Sal Vitale:]

So, just a couple of quick questions, so number one, just on the pure Pac-Van business, the revenue growth, I think you said in the release was what – 49% excluding the Lone Star acquisition and then – so, what was the units growth. Was that the 44% average number of units on lease? Is that what I’m reading into it – in the press release, is that correct?

[Charles Barrantes:]

Well, the average number of units on lease was about 8000 higher in the current quarter compared to the second quarter of last fiscal year.

[Sal Vitale:]

Okay. And then, what you were talking about earlier in terms of some of the give back on rates on frac tanks. Can you just give a little more color, I guess, on what percentage of your units were affected? I guess, and then maybe a little more color, what was the magnitude of the reduction in the rates?

[Ronald Valenta:]

This is Ron, Sal. Good morning. So, the range is from 0% to 20% and so I’d say the average was somewhere around probably 10%. So we’ve sort of have the whole spectrum. It didn’t involve only frac rentals, sometimes it also involves the service rates. So that has been the impact of where we are now. We pretty much I think, have renegotiated all of our contracts some of which were five year contracts which should be able to ensure we retain the volume.

[Sal Vitale:]

Okay. So, basically, that average 10% reduction, that pretty much apply to your entire Lone Star revenue base. Is that the fair way to think about it?

[Ronald Valenta:]

That’s probably close, yes. I mean, we are still early in the curve and that’s pretty close I think at this point.

[Sal Vitale:]

And this – and the – so the current quarter did not – so that phenomenon was not yet – has not been manifested in the current quarter results, is that the right way to think about it?

[Ronald Valenta:]

There was a little bit in the quarter because, of course all this started to happening up in Thanksgiving. So we felt a little bit in December, but clearly the total impact will be felt in future periods.

[Sal Vitale:]

Okay, so then – okay, so we will see a lot of that in the starting – in the March quarter and into the June quarter. And is that part of like just reading between the lines, am I thinking that right, that’s part of the reason that even though you had a great quarter, that you are not really touching your full year guidance, because it may have been got better – go ahead, sorry.

[Ronald Valenta:]

Yes, we still continue to say that, we are going to be on the high end of the guidance even with this impact which means, we have materially outperformed in the first half and still feel strongly that we are going to deliver the high end of the results as originally anticipated.

[Sal Vitale:]

Right, do you think that there is a potential for an additional reduction in the rates given the current oil environment, I mean, you’ve seen a little bounce in the last couple of weeks?

[Ronald Valenta:]

We can only tell you what our customers are – they are telling me that not to expect that but again, I think this is a bit new scenario for most in that world. So, again, we are being told that that this is that we have gone back to some of our plans twice now. So we think we are done and they are telling us we are done. So, based on that, we think we are fine.

[Sal Vitale:]

Right, just last question, Ron, can you give any sense, I mean, you made a good point, and it’s important that investors should really focus on I think is that, a lot of the activity, a lot of the basins that you service are more geared towards production revenue and exploration. Can you give a sense for whether it’s the Permian or the Eagle Ford or both if you have the data? What your sense is for the breakeven cost on production rather than exploration?

[Ronald Valenta:]

Yes, that’s an excellent question. We are south – most of our volume is in the two lower cost basins in Texas which is Eagle Ford and Permian and we have some longstanding relationships with the predecessors in those areas. What I can tell you is what we found out is, this is so drill site-specific by customer. So it’s not only basin and customer, it’s drill site. So they could be at a lower breakeven on one drill site at 30 and another 50 because it’s early on, at a higher amount of 6 years or 80. So, even by customer, it’s very hard to tell breakeven on an average, they don’t share that with us. So, we know it’s all over this spectrum, but what we really – that information is not shared with us to be able to determine exactly what the breakeven point, we do know, it does gets low as 30 and some of the newer ones that are now they lay down, they were as high as 80 or 90. So that was for the range, but I think most of the high-end stuff that haven’t really started, they’ve laid, those rigs have laid down and they continue to produce on the lower cost breakeven points, but we don’t know specifically by customer really what those are because it’s not shared data with us.

[Sal Vitale:]

Right, okay. Well, thank you for the color and congratulations on the quarter.

[Ronald Valenta:]

Great, thank you, Sal.

[Operator:]

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

[Brent Thielman:]

Hi, good morning guys.

[Charles Barrantes:]

Good morning. How are you doing Brent?

[Brent Thielman:]

Good, good. Thanks for all the commentary on the energy side. I’ll ask you one more, in terms of your six month outlook, can you just clarify what you factored in, in terms of your liquid containment leasing business? Are you assuming further reductions in lease rates ended as outlook or pullback in these units?

[Ronald Valenta:]

Yes, so I think what we are anticipating forecasting is the rate concessions that we have given in the last quarter that we did not feel a full quarter’s impact to – we have forecasted out based on impact of those rate reductions going forward for the balance of the fiscal year, the second half, as well, we have assumed that the Australian dollar is going to continue to be weak, which again, we trade in Australian dollars, so it’s more optics than anything and it doesn’t really impact us other than when you are making the conversion into US dollars. But nonetheless, we have assumed there is not going to be any meaningful improvement in the exchange rate between the Australian and US dollars. So, I think those are the two biggest factors that we brought in. We’ve also added little bit more to our core business in North America, which is going incredibly well. And so those two not fully offset each other, but those three components are the biggest material items that we have forecasting the second half of the fiscal year 2015.

[Brent Thielman:]

Okay, and then, it looks like Southern Frac results still pretty strong here. Are you seeing any swelling in terms of order trends there?

[Ronald Valenta:]

This traditionally, Brent, is a slow period of time for us. So, it has been slightly busier than in the past. But, we don’t think we are going to have as much activity as we had, say in the back half of last year on a comparable basis just because where energy is, we are moving to the industrial products side. So we have another, we are hoping, two, maybe three new products that is not energy-related that they’ll be building. So we think they are in a reasonably good shape, but I don’t think the volume will be driven by as much as the manufacturing of energy-related product like the Frac tide.

[Brent Thielman:]

Okay, and then, in Australia, how quickly or what sort of progress have you been making in terms of re-mobilizing some of the assets dedicated to the resources sector or obviously you are seeing some swelling?

[Ronald Valenta:]

Yes, we have the excess fleet that we have taken back. We have been actively pursuing other options with it. We currently have something north of ten – ten potential customers that have a use for that. And I would say the one that has the higher probability is probably New Zealand, taking the units to Christchurch for the large rebuilds. So they are beginning to bring in housing, accommodation units, as the rebuild is picking up speed a bit, but of course there is nowhere for the workers to stay. So, I would say, today the highest probability is that most of that fleet will end up in New Zealand to do long-term accommodations for the continued rebuild at Christchurch.

[Brent Thielman:]

Okay, great. Thanks guys.

[Ronald Valenta:]

Thank you.

[Operator:]

Thank you. Your next question comes from Scott Schneeberger with Oppenheimer.

[Scott Schneeberger:]

Thanks. Good morning guys.

[Ronald Valenta:]

Morning Scott.

[Scott Schneeberger:]

I’d like to start-off with the acquisitions like – to some other areas, but, Ron, could you address what the June, December and in January, you spoke last quarter about multiple pays. Could we touch on that and just what strategically these acquisitions do to add to the story? Thanks.

[Ronald Valenta:]

Okay, on the container side acquisitions, we’ve seen on the multiple is going in the range of 6 to 7 currently and that’s on EBITDA, Scott. And I think that transactions that we entered into were larger players, usually the number two or three areas in which we acquired. So we were very pleased to have them to the fold. They were all new docks for us. We do have deep business product spreads in the sector, so we think by adding new products and billing disciplines and all the other stuff that we do post closing that all of those transactions will do very well for us. So, - but the answer to your question specifically, the range today is between 6 and 7 on what we’ve been closing in the current fiscal year.

[Scott Schneeberger:]

Thanks, and then Ron, could you address, obviously, you mentioned that some of the larger players in the area and how do you bolster, just could you speak to the acquisition environment, what you are seeing for willingness to sell multiple and it seems that you have a fairly hungry appetite, you’re still able to talk the strategy through year end and maybe going forward? Thanks.

[Ronald Valenta:]

Yes, I think some of the larger players in the sector is shaking the tree a bit. Historically, the multiples over two or three decades has been between 4 and 5 and so, I think some of the larger players have been willing to bid up properties and that has really picked up a lot of interest by a lot of players that otherwise probably would not have been thinking about it. Again, the market, little bit we did for half a decade was very slow and there was not a lot of transactions going on. And so, based on a more liquid environment, more debt capacity, cheap capital if you will and higher multiples, I think some of the people that generally would not have to think part of selling or configuring it now. So, I think the pipeline is as full and rich as it has been in sometime. And with that, I think, we continue to take our fair share of those opportunities as they come up. So, certainly from an acquisition standpoint, I’ve seen a good time. I think everything has been very accretive to us in addition to what we can do with those assets once they come in within the fold. So – again in an acquisition standpoint, it’s a good time in the marketplace.

[Scott Schneeberger:]

Great, sounds good. On Pac-Van, could you address the pricing environment, it’s obviously been fairly healthy over multiple quarters. Do you still continue to see that feel good about that through year end? It sounds like it was Pac-Van itself was a component of – are you feeling good about the guidance going forward? Did you say that the seasonal pricing environment and then any comments you have on seasonality from – what you saw in the second quarter transitioning into the third, in Pac-Van specifically? Thanks.

[Ronald Valenta:]

Yes, so, the pricing question, and so, the industry leader has – within North America has taken the position of increasing rate and it has been very disciplined in increasing pricing and so, the other players, both the regionals and most of the smaller players are following to that, certainly not all of them. But, certainly there has been pricing discipline and the industry itself has been – is pricing for their services and products a lot more efficiently and fairly than we historically have been in the past. So, in the North America where we continue to see good pricing and good increases pretty much through all product lines. We’d also like to do that in Asia-Pacific as we lead there. We had not been as good at in that discipline in terms of increasing pricing, but we are getting better. So what we are seeing in terms of North America leadership on pricing, we’d like to replicate that in Asia-Pacific and I am sure we will start going as quickly as certainly I would like. As it relates to the seasonality, historically on the container side, our second fiscal quarter or fourth calendar quarter is a very busy time with the big box guys. So there is a lot of retail volume being done. I think all of the players shared the net volume this year and did a lot of volume. And so what happens is, when the holiday season goes away and this expandable warehouse space is no longer, need if those units come back. So, traditionally, the quarter in which we are in, on the container side is our slowest time, because all that fleet comes back and then usually, you start working to get it back out again, usually around the construction and spring season that really starts picking up. So we’re sort of going on a transition on seasonality from having the retail boxes coming back into a system and then systematically work in the back out as construction picks up and it’s a normal seasonality, so it’s been that way within our marketplace and we haven’t seen anything that’s exceptionally different than any other period, other than again, I think we are generally as the industry is getting better pricing in North America.

[Scott Schneeberger:]

Excellent, just a couple more if I could. The – obviously, natural resources coming down a bit, and I think you address that you have some areas and that’s been Christchurch is one of the areas where you could move containers. Could you just talk about strategically how you are handling the slowdown in the natural resources? It sounds like you do see a lot of offsets in other end-markets, if you could address that? And then just also anything – any precautions you are taking on the expense management side in light of that end-market especially? Thanks.

[Ronald Valenta:]

Yes, so, we had one large customer that we were doing long-term leases, because they were clearly not going to be able to meet their commitment. So we are in the process now of redeploying that fleet out in the quarter in which we are in and we are very optimistic by the end of this fiscal that, that part of the fleet will be producing yet again. As I had mentioned earlier on Brent’s question, there is at least ten different needs for that product with current customers and again, I thought the most likely would be taking at the Christchurch under long-term leases as they continue to rebuild that city. So, I think we are not putting new fleet out, it’s just a matter of getting our old fleet re-utilized and I think we are well on the way there. So, we have no additional CapEx investments that we’ll be making in that sector for the balance of the fiscal year. So, I think, from that regard, we are doing well in terms of the normal platform or landscape operations at the CFCs or branches as you could call them, Scott. That’s all going very well. So, I think we are in pretty good shape. We’ve been working on it for quite some time, but I think we are in good shape. And I’d also like to add up on CapEx. We were so busy in the front part of our fiscal year and we’ve front-loaded a lot of our CapEx for the year. So I think in the back half, you are going to see, unless things materially pick up, we’ll be continuing to utilize the fleet that we have now and you’ll see more normal CapEx investment going forward as I think, we probably have enough at this point. We’ll continue to be acquisitive as those come up, but again, I think we’ve front-loaded most of our fiscal 2015 CapEx in the first half that we have just concluded.

[Scott Schneeberger:]

Great, thanks. And then lastly, on the time that you shore up of oil and gas exposure and the price concessions you’ve discussed with some of your larger customers, do you feel that that represents, I think you said 31% of your exposure is in the Frac category. Does this represent the vast majority? And then, also importantly, you mentioned that there is some price concessions here, do you have escalators that will take it back up in an environment, was that pre-negotiated? Are you happy with the way that the pricing structure has worked out, because it sounds like you guys are very proactive in the industry on this and it sounds like a good thing.

[Ronald Valenta:]

Yes, so, all of our contracts, Scott, we have renegotiated and so those are all done as far as we are concerned. We have completed that. We, again don’t anticipate as we’ve been told to expect anymore rate concessions and that we are done with it. So, that’s all been papered and done in the new rates billed to the customers as we speak today. So, we think again from that perspective we are in, we are in good shape. In terms of the energy side, I don’t think we are going to be investing anymore than we have. We did spend the first half we were saying no to lot of that at volume that we didn’t think we could effectively service some of that business that’s coming back to us now. Clearly, we can take on more which we will – and that I don’t have a lot more to add.

[Scott Schneeberger:]

Thanks, so on the days, but as oil prices do go back up, you’ll be able to negotiate prices back up. Is there a pre-set of is that something that that goes in there?

[Ronald Valenta:]

Yes, yes. I am sorry, Scott, yes, I got it. I understand your point. In most contracts, we have attempted to put in a sliding scale, so as the market comes back, we don’t want to be stuck with the lower rate. So, in every contract, we have attempted to negotiate a sliding scale. So based on the price of oil, our pricing could actually go up as oil improves. So we are not stuck with these lower rates. And so, we are happy that we – in many cases we are able to put that in the contracts.

[Scott Schneeberger:]

Excellent, and then just the last one on that. Obviously, your guidance is through the end of the fiscal year. Just thoughts on - I guess, you probably don't have the visibility out to fiscal 2016 nor would you want to share that this early. But, how far out do you think you do have visibility just on this oil and gas price exposure and its effect on your main Lone Star customer? Just, weeks, months, quarters and just comment on this.

[Ronald Valenta:]

Yes, I think, unless, I think everyone is adjusted to the new world and they’ve made their decisions and sometimes they’ve gone back to the well twice since Thanksgiving Day. So that’s a good – six or seven weeks. It’s been very active. There has been a lot of rework, there has been a lot of meetings, there has been a lot of conversations. So, again, unless something materially changes, we don’t anticipate any – we haven’t been forewarned of anything new from the customers other than conversations that we’ve had that we have not shared with you. So, we would not anticipate anything going forward, other than what we’ve explained, other than the external world events change which clearly we have no control over and we don’t foresee any. But in terms of the conditions in which we are today, we think we are fine.

[Scott Schneeberger:]

Great, thanks for taking my questions and congratulations on a great quarter.

[Ronald Valenta:]

Yes, thank you Scott.

[Operator:]

Thank you. Next question comes from Austin Hopper with AWH Capital.

[Austin Hopper:]

Hey guys. Good morning. Sorry for the background noise. Great quarter. Pretty new to the story. Met with you once a little while ago. Can you just remind us, what is the EBITDA guidance for the year?

[Charles Barrantes:]

28% to 33% above fiscal year 2014.

[Austin Hopper:]

And what is the actual number?

[Charles Barrantes:]

It would be - the actual number would be somewhere in vicinity of 88.5 to 92.

[Austin Hopper:]

Okay, great. And then….

[Charles Barrantes:]

Without acquisitions. About being half.

[Austin Hopper:]

Right. How much of that is attributed to Royal Wolf?

[Ronald Valenta:]

It’s probably based on today’s exchange rate, it’s probably between 40% nearing 40%, 45%.

[Austin Hopper:]

Okay. And what percent of them do you own?

[Charles Barrantes:]

A little over 50%.

[Austin Hopper:]

Okay, and then – so, is the EBITDA guidance, is that consolidated for 100% of the operations or is that adjusted and it is the portion that you own?

[Charles Barrantes:]

No, that’s 100%.

[Austin Hopper:]

That’s 100%. Okay, great. Thank you.

[Charles Barrantes:]

Sure.

[Operator:]

Thank you. Next question comes from Tom Koch with Trancoso

[Tom Koch:]

Yes, good morning. I was wondering, back on Lone Star, can you just give us an idea as to the capacity utilization and where you guys are? I am thinking volume, you talked about price and price renegotiations. But, I was under the impression you guys were running pretty full out, you have been running pretty full out, and I think Ron just made a comment about having some ability to bring on some additional business. I am just trying to get a sense for kind of what has happened over the last six months as far as your utilization and your volumes and kind of how you see that playing out maybe over the next several months?

[Ronald Valenta:]

Yes, so I think the utilizations, and it’s very hard to say because when you may get units are cleaned that are really going out, but sitting, so, I think we have always have taken a conservative position to utilization that utilizations have been between the mid-80s and to 90. The balance of the unutilized really been, was been cleaned up and transported to the next location. So there is a lot of movement. Today, we find that utilization probably in the lower 80s today. So we do have some excess fleet that we can put out. We have invested heavily in systems and safety and in terms of people. So, we brought on some real talent that we think can do more volume and so with the recent change in oil prices, we have more aggressively gone out to customers that we turned down in the last six months period which was physically couldn’t get to. But between the bit of unutilized fleet that we have now which we didn’t have before and really the added talent level that we have we think we can take some of the holder work that we couldn’t possibly service, we could do now. So we are hoping that will backfill some of the rate erosion that will occur within the next couple of quarters.

[Tom Koch:]

Right, and so then I guess, if you assume that some of these lost volumes that may be too strong of a word, but your utilization decline a little bit of that, if you pick that up going forward, that again is going to be at lower pricing right? And so you kind of end up at the same spot if you had maintained all that volume at lower pricing with those original customers?

[Ronald Valenta:]

Yes, we clearly won’t have the same EBITDA margins at a lower rate going forward.

[Tom Koch:]

Correct.

[Ronald Valenta:]

They won’t preclude us from adding more fleet if we needed to and do more CapEx. We don’t anticipate that. But then we didn’t anticipate putting all our fiscal 2015 CapEx out in the first quarter of this year either. So, clearly, going forward any incremental add will be at a lower rate and effectively at a lower margin.

[Tom Koch:]

Right, but it would have been anyway if you had maintained that with those legacy customers, because you talked about rate reductions, right?

[Charles Barrantes:]

Correct, yes, it’s correct.

[Tom Koch:]

So, you kind of end up at the same spot, right?

[Charles Barrantes:]

Hopefully so, yes.

[Tom Koch:]

Yes, okay. And then, another thing you just touched upon on these margins is, is Lone Star still more than 50% of your North American leasing EBITDA?

[Charles Barrantes:]

It’s pretty close.

[Tom Koch:]

I mean, in the last quarter, it was 9 out of 17, I don't if you guys talked about it this quarter,

[Charles Barrantes:]

Yes.

[Tom Koch:]

Because I am looking at the margins, sequentially there is a slight decline in EBITDA margins, are you are still seeing forward.

[Charles Barrantes:]

Most parts, it’s little under 50% in North America.

[Tom Koch:]

Okay, and I know you guys had talked about having to invest OpEx into Lone Star and you guys set that expectation six months ago. So this sequential decline in EBITDA margin for North American leasing, despite the fact that this is a pretty strong quarter for you here in the US and North American leasing, can you address that?

[Ronald Valenta:]

So, on the first part, make sure I got it, so, on CapEx again, I think – we think we frontloaded CapEx for the year and it’s just the…

[Tom Koch:]

Operating, ex, Ron. So you guys talked about when you did the Lone Star acquisition that you are going to be spending some money upgrading their systems and personnel and whatnot. So what I'm wondering is, is that taking place? And is that a reason why the margin sequentially has…?

[Ronald Valenta:]

I get you. Okay, I understand, I understood CapEx, I am sorry. Yes, so, clearly was, we did not have the appropriate cost structure in place to be part of a public company. So, what you are seeing is more cost going into the structure as per plan to take care the back-offices and structural things that they didn’t had before, we got there fast improvement and safety, more qualitative people which come in at a higher price. So, by design, in our plan, we were going to invest heavily into OpEx as you call it going forward. So that should to continue to grow as we continue to bring more talent and system capability. And we’ve done everything to this point that we had planned, but we are still doing more upgrades going forward.

[Tom Koch:]

And if I ex out Lone Star out of your North American leasing for the quarter, do those margins hold up relative to last quarter? I am talking sequentially not year-over-year.

[Ronald Valenta:]

I am sorry, which margins, in North America or…

[Tom Koch:]

North America ex Lone Star.

[Ronald Valenta:]

Yes, they should.

[Tom Koch:]

Okay, thank you.

[Ronald Valenta:]

Thank you.

[Operator:]

Thank you. I have a follow-up question from Sal Vitale with Sterne Agee.

[Sal Vitale:]

Good morning. Just a quick follow-up. Have you experienced any degradation in credit quality now that you are chasing some of those customers that you said you previously could not service?

[Ronald Valenta:]

Yes, we – the ones we couldn’t service before was just because we basically couldn’t do the work in the manner in which we would want. So that’s why it’s turned down. In terms of your credit question, we don’t have any newer issues today than we did before on the Lone Star side, you are dealing with very large accounts, Shell affiliates, Anadarko, Apache. So, we’ve stayed on top of them, but they’ve generated larger customers with strong balance sheets and based on our internal reviews, it did not appear to be overlevered or have an inability to pay. So, I don’t think there is anything unusual today than what we had in the past in terms of changing credit profiles.

[Sal Vitale:]

Okay, and then what you mentioned earlier about having a scale in some of your contract renegotiations. So, is it essentially something like every $1 increase in oil price or every $5 dollar increase in oil price could get you get X dollars more of the rate?

[Ronald Valenta:]

Yes, so, the scale that goes to oil pricing, not increments than $1 but larger and then as that pricing of oil moves, so does our pricing. And that has been our attempt with all the customers.

[Sal Vitale:]

And how real-time does that kick in? Because over the last two weeks we’ve seen a nice surge in oil price?

[Ronald Valenta:]

Yes, it’s more likely that not going to be a month – more of a monthly thing than a day-to-day thing.

[Charles Barrantes:]

Not going to be that quick.

[Ronald Valenta:]

So they change it so fast.

[Sal Vitale:]

Yes, okay. Great. Thank you very much.

[Ronald Valenta:]

Thank you.

[Operator:]

There are no other questions at this time. I would now like to turn the call back over to Mr. Ronald Valenta, President 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 appreciate your continued interest in General Finance Corporation and enjoy your day. Thank you.

[Operator:]

Thank you. This does concludes today’s conference call. You may now disconnect.