General Finance (GFN) CEO Ronald Valenta on Q4 2015 Results - Earnings Call Transcript

Sep. 08, 2015 4:21 PM ETGeneral Finance Corporation (GFN)
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General Finance Corporation (NASDAQ:GFN) Q4 2015 Earnings Conference Call September 8, 2015 11:30 AM ET

Executives

Ronald Valenta - President, Chief Executive Officer

Charles Barrantes - Executive Vice President, Chief Financial Officer

Chris Wilson - Vice President, General Counsel, Secretary

Analysts

Daniel Hoffberg - Oppenheimer

Brent Thielman - D.A. Davidson

Austin Hopper - AWH Capital

Toby Swaden - Private Investor

Chip Saye - AWH Capital

Operator

Welcome to the General Finance Corporation’s Earnings Conference Call for the Fourth Quarter ended June 30, 2015. Hosting the call from today's 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.

It is now my pleasure to turn the conference 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 demands, our ability to procure adequate supplies for our manufacturing operations, labor disruptions, adverse resolution of any contract or other disputes with customers, declines in demand for our products and services from key industries such as the Australian natural resources industry or the U.S. construction or oil and gas industries or a write-off of all or a 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 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. Our 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 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 fourth quarter of fiscal year 2015. As usual, I will begin with a brief discussion of our results for the fiscal year and then provide our outlook for fiscal year 2016. Our CFO, Chuck Barrantes will then discuss our fourth quarter results and provide a financial overview. Following his remarks, we will open the call for your questions.

The following are the very strong first six months of fiscal year 2015. The second half was challenging for us as the global decline in oil prices reduced demand among our energy customers in both North America and in the Asia-Pacific region. However, despite these headwinds total revenues in fiscal year 2015 grew by 6% to $304 million and adjusted, they did increase by 22% to $84.2 million and even with the weaker Australian dollar relative to the US dollar there was positive trends in other areas of our business such as continued growth across most product lines and end marks in our North American leasing operations and improving construction sector, both Australian and New Zealand.

As we have mentioned in the past, we serve a diverse customer base of over 35,000 customers in over 20 industries with no single customer representing more than 4% of our annual revenues. This diversity helps us offset challenging conditions in any particular sector as it is presently the case with oil and gas. Additionally, we remain committed to providing best in class customer service and believe that this is validated by our most recent industry leading net promoter score of 82% in North American, as well as the fact that approximately 90% of our consolidated leasing revenues for fiscal year 2015 came from repeat customers.

During the year we continued our strategy of expanding our geographic footprint with accretive acquisitions. We completed eight acquisitions totaling approximately $38 million, two in Asia-Pacific and six in North American. All of these were portable storage container businesses and added to our customer and end make diversity.

In the year ahead, we will remain focused on pursuing accretive acquisitions and in late-August we completed a small acquisition of a portable storage container business based in Springfield, Missouri. Our pipeline remains active as we continue to see a number of opportunities, particularly in the United States where we only have a presence in 32 of the top 50 MSAs.

Now turning to our fiscal year 2015 results; revenues from our North America leasing operations for fiscal year 2015 increased by approximately $60 million or 57% to $166 million. These results included revenues of $50 million at Lone Star Tank Rental in fiscal year 2015 as compared to approximately $50 million in fiscal year 2014, where we only owned it for one fiscal quarter. Excluding the impact of Lone Star for both fiscal years, revenues increased by 27%, primarily driven by a 30% increase in leasing revenues. The increase in leasing activity was due to improved demand across all sectors except education.

Adjusted EBITDA for fiscal year 2015 increased 74% to $49.6 million from $28.5 million in the prior year. The significant increase in adjusted EBITDA was primarily driven by the full year including results from Lone Star, as well as a 37% increase in the average number of units on lease and improved the lease rates across most product lines. Excluding the impact of Lone Star for both fiscal years, adjusted EBITDA increased by approximately 40%.

As I alluded to earlier, North America had a very challenging second half due to the significant decline in oil prices, which adversely impacted our liquid containment business, while rig counts in our two primary basins in Texas, the Permian and Eagle Ford have stabilized in the last several months. They remain well below the peak levels achieved last calendar year.

Our major oil and gas customers continue to put pressure on the entire supply chain, returning the idle equipment and seeking very competitive pricing based on the new market dynamics. We experienced both reduced weak utilizationreduced and pricing. Our focus over the next several quarters is to actively seek to replace our reduced volume and pricing with additional business from existing and new customers and in new regions and we have made some initial progress in this area.

We believe that this, along with prudent expense control and the stabilization of oil prices will gradually enable us to return to more normalized levels of profitability in this segment of our business. Our North America manufacturing revenues for fiscal year 2015 totaled $34 million, which includes $20 million of intercompany revenues. This compares to $48 million in total stand alone revenues for the prior year of which approximately $29 million were intercompany revenues.

Prior to intercompany adjustments, adjusted EBITDA on a stand-alone basis for fiscal year 2015 was $5.4 million down from $7.2 million in fiscal year ’14. However, despite the lower revenue and adjusted EBITDA over the nearly three years since we have acquired it, we have generated total stand alone adjusted EBITDA at almost double of what we paid for the business.

With a view to diversification we have been focused on expanding our product lines and entering into new vertical markets. To that end I am pleased to report that subsequent to fiscal year end we received several orders for new products, including our recently introduced container chassis products. Specifically we received an order for 300 units representing over $3 million in future revenues for the container chassis product from our North American onshore container transportation company.

We are encouraged by our initial success and believe that this new product line represents an attractive opportunity for us. We are also evaluating other new products that would serve a number of adjacent markets, including specialty trailers and tanks, fuel distribution tanks, water recycling systems, construction bins and storm shelters.

Now turning to the Asia-Pacific region. Revenues at Royal Wolf for fiscal year 2015 were $124 million, down from $162 million in the prior year, a decline of 24%. The lower revenues were the result of one: a weaker Australian dollar relative to the U.S. dollar; and two: the absence of three large one-off sales from the transportation government and oil and gas sectors that only occurred in fiscal year 2014. This was offset however by some very positive trends such as one, improved demand in our retail and consumer end markets; secondly, continued strength in our New Zealand business; and thirdly: improved leasing activity in the construction sector, particularly in the major cities of both countries.

Now we continue to remain disciplined in our fleet management as our overall utilization remains steady at 82% for both fiscal years. Adjusted EBITDA for fiscal year 2015 was approximately $38 million compared with $44 million in the prior year, a decrease of 14%. The decline in adjusted EBITDA was primarily driven by the lower sales revenue. On a local currency basis revenues declined by 16%, however leasing revenues were up by approximately 2% and adjusted EBITDA decreased by 6%.

Now I’d like to discuss our company wide outlook for fiscal year 2016. Based on the current environment in the oil and gas sector and our outlook for the value of the Australian dollar versus the U.S. dollars, which we are assuming will average $0.68 in the upcoming fiscal year, down 19% from fiscal year 2015, we estimate that fiscal year 2016 consolidated revenues should be in the range of $255 million to $295 million and the consolidated adjusted EBITDA should be 16% to 26% lower in fiscal year 2016 from fiscal year 2015.

Without the anticipated currency impact, consolidated adjusted EBITDA would only be down approximately 8% to 18% in fiscal year 2016. Similar to the guidance that we gave last year, this outlook does not take into account the impact of any acquisitions in fiscal year 2016.

As I have said before, we have what we believe to be the best operating managers in the sector in both of our geographic revenues. We have a strong balance sheet and ample financial flexibility. We are diversified by product type, customers, end markets and geography and while the next couple of quarters are expected to be challenging, we believe that we have once again regained our business momentum and overcome the macro-economic headwinds that we are facing in the oil and gas sector.

We continue to have a number of long term growth opportunities, including expanding our North American foot print and strengthening our market leadership in the Asia-Pacific region. We remain active in pursuing accretive acquisitions with a focus on portable storage container businesses and we remain disciplined in our capital allocation, deploying our resources and capital where we see healthy demand and opportunity, whether it be driven by geography or end market.

I’ll now turn the call over to Chuck Barrantes for his review of the fourth quarter results and our financials.

Charles 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 be discussing today.

Now turning to our financial results for the fourth quarter of fiscal year ’15. Total revenues were $65.3 million in the fourth quarter of fiscal year 2015 compared to $90.1 million in the prior year’s fourth quarter. Fourth quarters leasing revenues were $40.9 million, down from $51 million in Q4 fiscal year 2014 and comprised 64% of total non-manufacturing revenues as compared to 61% for the same period last year. Non-manufacturing sales revenues were $22.9 million in the quarter, down from $32.4 million in the fourth quarter of the prior year.

In our North American leasing operations, revenues for the fourth quarter of fiscal year 2015 totaled $34.7 million compared with $39.3 million for the year ago period, a decrease of 12%. The decline in revenues was primarily due to an approximately 19% decrease in leasing revenues driven by 57% drop in the oil and gas sector. However, leasing revenues from other sectors, particularly commercial, construction, retail and industrial, increased by 21%.

Revenues in our North American manufacturing operations for the fourth quarter were $1.4 million and intercompany revenues to our North American leasing operations were negligible. This compares to $16.7 million of external sales and $12.2 million of intercompany revenues during the fourth quarter of fiscal year 2014. As Ron mentioned, our manufacturing business was also impacted by the slowdown in the oil and gas sector.

In our Asia-Pacific leasing operations, revenues for the fourth quarter of fiscal year 2015 totaled $29.1 million compared with $44 million for the fourth quarter of fiscal year 2014, a decrease of 34%. The decline in revenues occurred primarily in the government oil and gas mining and transportation sectors, partially offset by increases in the construction and consumer sectors and was accompanied by an approximate 17% unfavorable foreign exchange translation effect between periods.

Consolidated adjusted EBITDA was $13.9 million in the fourth quarter of 2015 compared to $23.4 million in the fourth quarter of 2014. Adjusted EBITDA margin as a percentage of total revenues was 21% for the quarter versus 26% in the prior year’s quarter.

In North American adjusted EBITDA for our leasing operations was $7 million in the fourth quarter compared with $12.4 million for the year ago quarter. The decrease was primarily impacted by the softness in our liquid containment business, specifically Lone Star which experienced an approximate $6.5 million year-over-year decline in adjusted EBITDA. Remainder of our North American leasing operations, which is more diversified showed an 18% increase in adjusted EBITDA.

Adjusted EBITDA on a stand-alone basis for our manufacturing operations was a loss of approximately $1 million for the quarter compared to earnings of $3.3 million in the fourth quarter of 2014. While I will suggest that EBITDA for the quarter was $9.2 million compared with $12.8 million the year ago quarter down 28%, on a local currency basis adjusted EBITDA was down approximately 14% for the prior year’s fourth quarter.

Interest expense for the fourth quarter 2015 was $5.1 million, up from $4.7 million from the fourth quarter of last year. The higher interest expense was primarily due to higher average volumes in North America. The weighted average interest rate in North America was 4.7% for the fourth quarter of the current fiscal year versus 5.4% in the prior year’s quarter. In the Asia-Pacific the current period weighted average interest rate was 5.9% for both quarter periods.

Net loss attributable to common stock holders in the fourth quarter 2015 was $3.1 million or $0.12 per diluted share versus net income of $800,000 or $0.03 per share in the fourth quarter 2014. Both periods included reduction later at $92,000 for dividends paid primarily up on our Series C cumulative preferred stock.

Fiscal year 2015, we generated free cash flow before fleet activity of $33 million, an increase of approximately $1 million despite the challenging second half of the year. As a reminder we define free cash flow to be cash from operating and investing activities adjusted for changes in non-manufacturing inventory, net fleet, CapEx, and business and real estate acquisitions.

For fiscal year 2015, the company invested a net $54.6 million; $42.1 million in North America and $12.5 million in Asia-Pacific in the lease fleet as compared to $65.8 million in net fleet investment in fiscal year 2014. This comprises of $44.3 million in North America and $21.5 million in Asia Pacific.

Turning to our balance sheet, as of June 30, 2015 the company had total debt of $356.7 million and cash equivalents of $3.7 million with a net leverage ratio of 4.2 times for the trailing 12 months for the fiscal year. This compares to $302.9 million and $5.8 million at June 30, 2014 respectively, which is a net leverage ratio of 4.3 times on a historical basis and 3.4 times on a pro forma basis, which considers the acquisition of Lone Star in April 2014.

Receivables were $47.6 million at June 30 ‘15 as compared to $61.5 million at June 30, 2014. DSO and receivables were 40 days and 66 days for Asia-Pacific and North America respectably compared to 43 days and 67 days at June 30, 2014. At June 30, 2015 our North American leasing operations had $41.3 million available to borrow under its $232 million credit facility, and Royal Wolf had approximately 34.2 million Australian or a little over US $26 million available to borrow under its 175 million Australian dollar facility.

This now concludes our prepared comments and I would like to turn the call back to the operator for the question-and-answer session.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Scott Schneeberger with Oppenheimer.

Daniel Hoffberg

Good morning guys. This is Daniel filling in for Scott. I have a couple of questions on each segment here. We’ll start with Pac-Van. If you can discuss the pricing environment, what you’ve been seeing in the quarter and the potential rise in prices going forward, as well as if you can discuss some of the end markets that have primarily been driving demand here recently.

Ronald Valenta

Yes, good morning. This is Ron. Yes, so we’re seeing some low single digit rate increases in our core product. It’s pretty much across the board, which we’re clearly very pleased to see and in terms of end markets we’re seeing certainly more activity on the construction side. We’re in the middle of the retail season and that looks like it will be equal to or slightly better than the preceding year, especially with some of the big box guys doing their leeway, so we’re seeing in our core business the primary drivers that you would normally see at this time of the year. So again, the core business has been very positive and we’re seeing small rate increases on that part of the business.

Daniel Hoffberg

Okay, understood. I mean these are some headlines about concerns about global growth in China and so forth. Can you elaborate on what visibility you have by end market in the Royal Wolf business and how you see the end market demand trending here in the first half of ’16?

Ronald Valenta

Yes, I think again on the construction side things are going very well there. I think their accommodation or as we refer to in terms of mining camp businesses, those really suffered as a result of commodities and the slowdown in China that we felt the full impact in the back half of the last fiscal and going into this fiscal and that’s sort of all in there, baked into their estimates. And then as well in their freight business, that’s picked up a bit as well, the freight business and its containers.

So again, I think it’s pretty similar to the U.S., the core businesses doing quite well, and then anything that’s energy related, this clearly has had a negative impact.

Daniel Hoffberg

Okay, understood. Then a question on Lone Star. I mean if you can help us get a sense of where you think we stand on the curb. You mentioned the fleet on ramps and pricing, some pricing softness still. What are you hearing in your conversations with customers on volume or price and how do you think the visibility is for Lone Star?

Ronald Valenta

Yes, two months ago when things were looking a lot better in terms of gas prices, we thought it certainly looked like we’re on some road of recovery and then clearly prices have gone down considerably since then. I think our internal view based on what we’re hearing is that we’re somewhere around the bottom, or if you will bouncing along the bottom. This is still going to take a while to get through.

We have gone into the year properly structured from a cost standpoint, which the head of North America, Jody Miller has done an excellent job of getting the cost structure in that business in line to our volume. And we continue to be profitable in that business, certainly not what we used to be, but we’ve done a great job on the cost side and the volume comes as it comes. We’ve been getting new customers willing to go to new locations with them as well if needed. So I think generally this is going to be a wait and see type of thing.

Our view is we’re clearly near a bottom or at a bottom and we’re looking up, when exactly we’d return obviously [indiscernible] amongst macro economics and what not, which we really are not in a position to forecast, but we certainly monitor it on a daily basis.

Oil and gas has become a smaller part of our aggregate volume, really by the fact that they are doing less. Then again I think we’re in a relatively good position. We feel that you will see utilizations go up first and then once we sort of more fully utilized, then we will fall with the rate, clearly and then we’ll see some rate movement to the upside, but I think with the amount of fleet available currently in the marketplace, you’re going to have to get to more normalized utilizations before we see any meaningful rate increases.

Daniel Hoffberg

That’s helpful. Thank you very much guys.

Operator

Our next question comes from the line of Brent Thielman with D.A. Davidson.

Brent Thielman

Hi, good morning.

Ronald Valenta

Hey, good morning Bent.

Charles Barrantes

Good morning.

Brent Thielman

The gross margin on leasing revenue is kind of progressively coming as the year went on. At this point is the pressure more to do with the liquid containment piece of the business or the Asia Pac operations and do you kind of feel like we’re nearing the bottom in terms of that?

Ronald Valenta

Yes. So the core business margins continue to improve and then if you see in the consolidation any softness, it would come out of the liquid containment side, so to answer that question. And then along the lines of where we are yet, I had just answered in the prior series of questions. Yes, we think we’re bouncing along the bottom. There’s clearly more upside than there is downside. Again, we’re not one that project where oil and gas will be. We firmly believe we have right sized the operation. We’re very happy with where our margins are now. We just need more volume and again, that will come through putting more units out and improving our utilizations wherever we can and then what will follow that exercise will be clearly rate, but it’s going to take some time.

Brent Thielman

Okay, and then I guess for clarification, you touched on this before, but with respect to kind of Royal Wolf and expectations that your EBITDA will be kind of comparable to FY ’15, is that you think you’ve sort of last [ph] the pressures from the mining and energy segment to the economy and that’s how you get to a flat you at.

Ronald Valenta

Yes, I think the core business will improve and then on the energy related side that has gone down, so one that sort of offsetting – the other to end up in some level of flatness. I think the biggest concern down there is really again a fact that we can’t control this currency rate and the projected currency it’s going to get, even weaker than what it has been. So that’s certainly a disappointment, but again we’re going to focus on the business and what we can control and overall the external factors as they occur.

Brent Thielman

Understood. And then you mentioned you expect to lower debt levels this fiscal year. Do you have a target leverage ratio or kind of absolute net debt level you’re looking to get to?

Charles Barrantes

Yes, Brent, this is Chuck. We don’t necessarily have a target leverage ratio. Certainly the plan is, our business we generate a significant amount or a good amount of free cash flow. We’ll use that if there is not opportunity to deploy it into other segments or what have you, but we do not have a target, but certainly most of that reduction will be in the Asia Pacific versus North America where we think we still have a pretty good opportunity for acquisitions and as Ron mentioned earlier in the teleconference, we did make a small acquisitions right after year end, about $1.5 million, the company in Springfield’s.

Brent Thielman

Okay, great. Thank you.

Charles Barrantes

Sure.

Operator

Our next question comes from the line of Austin Hopper with AWH Capital.

Austin Hopper

Hey guys, thanks for taking my questions. I think it was the February call where you were asked about the give back on rates on Frac tanks and I think at that time you indicated that you had been through essentially renegotiate all of your contracts and that the average price reduction was down about 10%. I just was hoping if you could update us on that and did that kind of hold or has it been better or worse.

Ronald Valenta

Yes, I mean what we have found is and I think that’s what they would recall and there was a subsequent call to that call to go over our third quarter and now we’re here talking about our fourth quarter in our fiscal ’15.

I think we have had some disappointment with some of our customers that we went through aggressively on the forefront of renegotiating prices, service levels and what not, really maintaining.

We have not cut any of our core service or safety levels, really with the view that long term that will prove to be what makes us different from everyone else that we compete with, because clearly they’ll be cutting cost if they are over levered if you will and try to cut corners to maintain margin, where we have maintained the core cost structure to be able to provide what we believe is quality service and stellar safety levels.

Having said that, we have in some cases have to go back to the well four different times with some of our customers on pricing. So our lot of the contracts that we have spent so much time redoing as they have had other pressures of their own, whether it be debt levels, public earnings announcements, whatever the situation maybe, that they’ve always come back aggressively to all service providers and have really requested if not demanded more rate concessions.

What we I think found the biggest disappointment is, when we entered into the revision to the contracts or the revision to the revision, a lot of the changes that have subsequently occurred is a result of the corporate, in the corporations corporate offices. So the people we work in the field level or the regional level have been great, but they don’t really know all the pressures that are at corporate. So a lot of the pricing demands or requests were really made from corporate on down, so we have gotten some cases as much as four times back to the well, in some situations where if we didn’t think it was marginally profitable, we know we wouldn’t even do it.

So the pricing got considerably worse as time went on from quarter-to-quarter even though we had contractual commitments, so that was a bit of a disappointment. I can tell you today going forward, we don’t anticipate any other changes in the pricing that’s stabilized, so we think again that we’re bouncing along the bottom and that worked our way through the worst of the pricing concessions.

Austin Hopper

Right. I think that’s how you mentioned that you had built in price escalators into all of your contracts, so that I guess simply it’s the pricing on the line commodity increase that you would see an increase in the rates that you were receiving. And one, is that typical in the Industry, because I have not heard of anyone else kind of getting escalators like that. Are those in place and how does that work?

Ronald Valenta

So we had discussed attempting to get those into the contracts as we went through the multiple revisions. We have received now verbal commitment, so if things improve that we do not have anything contractual, not in this incidence or this industry that seems to matter anyway. So we have at this point in time verbal arrangements, that is pricing on oil improves that our pricing goes well. But clearly pricing on oil has not improved and so we do not have built into our forecast any rate improvement during fiscal year ’16, as we don’t have any visibility to that happening at this point in time. So it will be an added bonus to our guidance if in fact that occurred, but we have not forecasted or projected that going to the fiscal year in which we are now in fiscal ’16.

Austin Hopper

Okay, but you have verbal assurances from your customers that they will escalate your rates if the price of oil goes up, is that right?

Ronald Valenta

We have a verbal understanding.

Austin Hopper

And did you have verbal assurances prior or was it in writing in prior contracts?

Ronald Valenta

Yes, we had a mix of both, but most of it and some of – and one of those fore terms were verbal.

Austin Hopper

Right. Hey, you guys bought Lone Star in 2014 for $102 million. I think mainly you paid cash. Could you tell us kind of what the run rate EBITDA of Lone Star was at that time versus what it likely is today?

Ronald Valenta

Well, when we bought it back a year ago, a little over a year ago, we bought it about 5.8 times EBITDA, so that would be a run rate of about between $16 millionand $16.5 million. We’re substantially below that as of right now.

Austin Hopper

Okay, good. Thank you.

Ronald Valenta

Sure.

Operator

[Operator Instructions] Our next question comes from the line of Toby Swaden, a Private Investor.

Toby Swaden

Hello, good morning guys. How are you?

Ronald Valenta

Hey Toby, fine. How are you doing?

Toby Swaden

Good, good. Hey, difficult environment, but we’re very confident you guys will manage through it you have the track record for doing that. Just a quick question; have you considered even a modest share repurchase program?

Charles Barrantes

Toby, this is Chuck. Yes, we’ve – I mean the board and the management team considers a lot of different alternatives including that. We have considered it at this point in time. We are not looking at entering into it. Among other things we would have some issues with our senior lender with respect to that, but it’s certainly something that we do consider and we do talk about.

Toby Swaden

Just quickly as a follow-on. You were saying issues with a senior lender. Is that a contractual covenant issue or kind of verbal agreement?

Charles Barrantes

It is a – contractually we only have a small bucket to do things like that. Certainly from a senior lender, an ABL senior lender, the purchase of stock is not something that benefits them. So they are very accommodating to us in our capital needs. Certainly we feel confident that if the board were to decide and do something, we can certainly make accommodations, but at the moment that’s not the approach that we’re taking.

Toby Swaden

Okay, thank you.

Ronald Valenta

Sure.

Operator

Our next question comes from the line of Austin Hopper with AWH Capital.

Chip Saye

This is Chip Saye in AWH Capital calling in. I have one follow-up question. The range of EBITDA guidance for next year is $62 million to $71 million, is that right?

Charles Barrantes

That’s pretty much it, yes.

Chip Saye

Okay. So if you annualize Q4, I get a number of around $55 million, $56 million. Can you talk about the assumptions your making such that EBITDA will improve annually from this Q4 number that I’ve annualized?

Charles Barrantes

Basically two assumptions; we expect a pretty nice organic growth from Pac-Van that is not only gas and we do expect some increase in our liquid containment over the fiscal year in the back half.

Chip Saye

Okay, the second part of the…

Charles Barrantes

The other thing is also was that in Q4 there were some one-offs in our liquid containment business. Obviously from our Q3 into Q4 had renegotiations, adjustments to billings and rates, as well as the normal Q4 clean up or receivables and what have you. So Q4 is not necessarily representative of what the fiscal year is though.

Chip Saye

Okay. Thank you very much.

Ronald Valenta

Sure.

Operator

There appear to be no further questions at this time. I’d like to turn the floor back over to Mr. Ronald Valenta for any additional or closing remarks.

A - Ronald Valenta

Yes, I’d like to thank all of your for joining our call today. As always, we appreciate your interest in General Finance Corporation and have a good day.

Operator

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

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