General Finance's (GFN) CEO Ronald Valenta on Q4 2017 Results - Earnings Call Transcript

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About: General Finance Corporation (GFN)
by: SA Transcripts

General Finance Corporation (NASDAQ:GFN) Q4 2017 Earnings Conference Call September 6, 2017 11:30 AM ET

Executives

Chris Wilson - VP, General Counsel and Secretary

Ronald Valenta - Chairman and Chief Executive Officer

Charles Barrantes - EVP and Chief Financial Officer

Jody Miller - President

Analysts

Scott Schneeberger - Oppenheimer

Greg Eisen - Singular Research

Roresa Mojo - D.A. Davidson

Louise Hernandez - Private Investor

Neil Gagnon - Gagnon Securities

Operator

Welcome to General Finance Corporation’s Earnings Conference Call for the Fourth Quarter and Fiscal Year Ended June 30, 2017. Hosting the call today from the company’s corporate offices in Pasadena, California are Mr. Ronald Valenta, Chief Executive Officer of General Finance Corporation and Mr. Charles Barrantes, Executive Vice President and Chief Financial Officer. Today’s call is being recorded and will be available for replay beginning at 2:30 p.m. 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 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, increases in interest rates for our variable rate indebtedness, our ability to raise capital or borrow additional funds, changes in the Australian, New Zealand or Canadian dollar relative to the U.S. dollar, regulatory changes, customer defaults or insolvencies, litigation, acquisition of businesses that do not perform as we expect or that are difficult for us to integrate or control, our ability to secure adequate levels of products to meet customer demand, our ability to procure adequate supplies for our manufacturing operations, labor disruptions, adverse resolution of any contract or other disputes with customers, declines in demand for our products and services from key industries such as the Australian construction and transportation industries or the U.S. construction and oil and gas industries or a write-off of all or a part of our goodwill and intangible assets. These risks and uncertainties could cause actual outcomes or results to differ materially from those described in our forward-looking statements. We believe that the expectations represented by our forward-looking statements are reasonable, but there can be no assurance that such expectations will prove to be correct.

For more details regarding these risks, please see the Risk Factors section of our periodic reports filed with the SEC and posted to our website at 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 at 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, Chairman and CEO. Ron, please go ahead.

Ronald Valenta

Thank you, Chris. Good morning. We appreciate you joining us to discuss General Finance’s fourth quarter and fiscal year 2017 results. As in prior earnings calls, I will begin with a brief discussion of our operations and then provide an update on our outlook for fiscal year 2018. Our CFO, Chuck Barrantes will then provide a financial overview, and following his remarks, we will open the call for your questions. Also joining us again today, for our question-and-answer session is Jody Miller, our President and my successor as CEO in January of 2018.

Before I begin my remarks, I want to provide an update on the impact on our operations of the flooding in Texas. First, on behalf of everyone here at General Finance, I would like to express our heartfelt concern for all those who are impacted by the storm and flooding. Our thoughts and prayers are with everyone as they work towards recovery in returning to their homes. As far as it relates to our branches and operations in the impacted area, we were very fortunate to only have experienced damage of any significance to our Houston branch, which houses fewer than 500 units. Our Corpus Christi branch experienced some flooding, but was open for business almost immediately thereafter. Fortunately, all of our employees in the area of Harvey’s path are both safe and sound. Overall, we expect the impact on our financial results for the first quarter of fiscal year 2018 to be minimal. I want to personally thank the teams in Texas for their efforts through this unfortunate event.

Now, to my operational review. We finished the year with solid momentum delivering a strong performance in the fourth quarter generating year-over-year improvement in several of our key operational and financial metrics, including fleet utilization, leasing revenues and adjusted EBITDA. Our fourth quarter performance was primarily driven by improving results at North America leasing operations where we saw leasing revenues increase by approximately 18% year-over-year based on growth across most sectors, particularly in the oil and gas sector. We benefited from increased oil and gas production activity in Texas and are optimistic about this sector as we enter into our new fiscal year. More significantly, we continue to execute well in terms of our core container based business in North America.

During fiscal year 2017, we grew our lease fleet of portable storage containers and office containers by 5% and 14% respectively, while maintaining high average fleet utilization and stable to modestly increased lease rates. As we have mentioned in the past, the vast majority of our incremental fleet CapEx have been targeted towards these two product types given their attractive unit economics.

At Pac-Van, we continued to provide superior customer service and as a result, our net promoter score remains high at 85% for the fiscal year.

In our liquid containment business in North America, we generated strong leasing revenue growth both sequentially from the third quarter and on a year-over-year basis when compared to last year’s fourth quarter. Increased oil and gas production activity in Texas has enabled us to achieve higher sequential average fleet utilization for the fourth quarter in a row. For the quarter, liquid containment average utilization was 58% up from 49% in the third quarter and 44% during the second quarter. In addition we experienced an increase in our frac tanks average monthly lease rates on a sequential basis for the third quarter in a row, which averaged $622 for the quarter, up 15% from the third quarter and 32% from the trough in the first quarter of this fiscal year.

We remain focused on growing our business in the basins that we serve based on our high level of customer service and safety record. Our North American manufacturing operations delivered improved financial results for the fourth quarter and the full year as we continue to make progress in the marketing and production of our chassis and specialized blast resistant container products. While our goal is to become EBITDA positive, its financial results are still being impacted by the ramp up of these new products and the ongoing soft demand for new frac tanks. That being said, we reduced its standalone adjusted EBITDA loss by over 50% in fiscal year 2017 from fiscal year 2016 and we remain focused on achieving breakeven results and making these new steel-based products commercially viable.

In the Asia-Pacific, fiscal year 2017 was a year of transition as we focus on redeploying our workforce accommodation fleet into the growing construction sector and we were able to maintain overall fleet utilization against a backdrop of a sluggish Australian economy. Our fourth quarter results were down year-over-year, but basically in line with our expectations as the last year’s fourth quarter was a difficult comparison primarily due to the final settlement payment we received from a customer in the energy sector that went through a previous restructuring. Going forward, we are optimistic about fiscal year 2018 based on a more favorable outlook for the Australian economy, the ongoing activity in non-residential construction across the region and our continued strong execution in New Zealand.

With respect to our corporate bid to acquire the remaining 49% of common shares of Royal Wolf that we do not currently own, I am pleased to report that we have received acceptance from over 98% of the shares outstanding including ours, which means that at the close of the bid on September 8, we can proceed with a compulsory acquisition of the remaining shares. Shareholders who have voted in favor of the bid will be paid by the end of this month and we anticipate the compulsory acquisition will be completed by the end of October. We are looking forward to closing this transaction and are excited that Royal Wolf will again become a wholly-owned subsidiary of ours. As a result of this accretive transaction, we will simplify our organizational ownership structure to save on redundant public company costs and free up more of our Royal Wolf’s management time and resources to focus solely on building the business and we, GFC, and our shareholders will receive 100% of the benefit of the future financial results and value creation in the Asia-Pacific area.

During the fiscal year, we continued our strategy of expanding our geographic footprint with accretive container-based acquisitions. We completed 3 portable storage container business acquisitions, 2 in North America and 1 in the Asia-Pacific region. In addition, during fiscal year 2017, we opened 4 Greenfield locations in North America and 2 in Asia-Pacific. In the year ahead, we will remain focused on continuing our geographic expansion both organically through Greenfield locations and through accretive acquisitions. Our pipeline remains healthy as we continue to see a fair number of opportunities in the United States, where we currently have a presence in 47 of the top 100 MSAs. Along these lines last week, we completed a small acquisition of a portable storage container business located in Austin, Texas adding another dot to our landscape and improving our presence in the Texas marketplace.

Now, turning to our companywide outlook for fiscal year 2018. Assuming the exchange rate for the Australian dollar versus the U.S. dollar averages $0.78 which represents a 3% increase from fiscal year 2017, we expect the consolidated revenues for fiscal year 2018 will be in the range of $295 million to $315 million and the consolidated adjusted EBITDA will increase to between 8% and 16% in fiscal year 2018 from fiscal year 2017. This outlook does not take into the account the impact of any acquisitions that may occur in fiscal year 2018 including the one just completed in Austin.

We remain committed to our disciplined approach to capital allocation deploying our resources and capital where we see healthy demand and opportunity. In North America, our focus is to significantly expand our geographic footprint over time and continue to build upon the positive results they were generating in our core container-based businesses. In the Asia-Pacific region, we will focus on returning to both revenue and adjusted EBITDA growth strengthening our market leadership position and using our expected free cash flow to de-lever the balance sheet.

I would now like to turn the call over to Chuck Barrantes for his financial review.

Charles Barrantes

Thanks, Ron. We will be filing our Annual Report on Form 10-K later this week at which time this document will be available on both the SECs 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.

Now, turning to our financial results. Total revenues were $73.3 million in the fourth quarter of fiscal year 2017 compared to $72.3 million for the fourth quarter of fiscal year 2016, an increased of 1%. Leasing revenues were $45.8 million, an increase of 12% over the prior year’s quarter and comprised 63% of total non-manufacturing revenues as compared with 57% for the same period last year. Non-manufacturing sales were $26.4 million in the quarter, down 15% from $31 million in the fourth quarter of fiscal year 2016. In our North American leasing operations, revenues for the fourth quarter of fiscal year 2017 totaled $44.9 million compared with $39 million for the year ago period, an increase of 15%. Leasing revenues increased by 18% on a year-over-year basis substantially from our oil and gas and commercial sectors. Sales increased by approximately 10% during the quarter primarily from the commercial sector.

Revenues at our North American manufacturing operations for the fourth quarter were $1.7 million and included intercompany sales of $600,000 from products sold to our North American leasing operation. This compares to $1.7 million of total sales during the fourth quarter of fiscal 2016, which included intercompany sales of $1.4 million. In our Asia-Pacific leasing operations, revenues for the fourth quarter of fiscal year 2017 totaled $27.3 million compared with $33 million for the fourth quarter of fiscal year 2016, a decrease of 17%. The decrease in revenues occurred primarily in the transportation and oil and gas sector. In the year ago period, there was several one-time low margin sales in the transportation sector that were not repeated in the fourth quarter of this year prior to the decline in revenues. These decreases were partially offset by increases in the construction, industrial and consumer sectors and were accompanied by an approximately 1% favorable foreign currency translation effect between the periods. Leasing revenues were relatively flat on a year-over-year basis, but increased in the construction, transportation and industrial sectors and were largely offset by decreases in the oil and gas and mining sectors.

Consolidated adjusted EBITDA was $15.5 million in the fourth quarter 2017 compared with $13.9 million in the prior year’s quarter – fourth quarter. It increased by approximately 12% and within the guidance range we provided when we reported our third quarter results. This was the second consecutive quarter of year-over-year growth. Adjusted EBITDA margin as a percentage of total revenues was 21%, up from 19% in the fourth quarter of fiscal year 2016. In North America adjusted EBITDA for our leasing operation was $10.9 million in the fourth quarter compared with $8.6 million for the year ago quarter, an increase of 27%. Adjusted EBITDA at Pac-Van was $8.7 million, up 18% year-over-year and Lone Star’s adjusted EBITDA was $2.2 million, up 83% year-over-year.

For our manufacturing operations on a standalone basis, Southern Frac’s adjusted EBITDA was a loss of $371,000 for the quarter, an improvement from last year’s fourth quarter of adjusted EBITDA loss of $856,000. As Ron mentioned earlier we are focused on making our new steel based products commercially viable. Asia-Pacific’s adjusted EBITDA for the quarter was $6.4 million as compared to $8.2 million in the year ago quarter, a decline of 22%. On a local currency basis, adjusted EBITDA was down 23% from the prior’s fourth quarter and was primarily impacted by lower leasing revenue from the oil and gas sector as we received the final settlement from our customer in that sector as Ron mentioned in last year’s fourth quarter that wasn’t repeated this year.

Interest expense for the fourth quarter 2017 was $4.6 million, down from $4.8 million in the fourth quarter of last year. The decline between the periods included a lower interest expense in the Asia-Pacific about $1 million driven primarily by lower average borrowings, the benefit of closing interest rate swap contract and a slightly lower weighted average interest rate, offset somewhat by the foreign translation effect of stronger Australian dollar relative to the U.S. dollar. The weighted average interest rate in Asia-Pacific was 5.2% in the fourth quarter fiscal 2017 versus 5.3% in the fourth quarter fiscal year 2016. In North America an increase in interest [ph] expense between the periods of $800,000 was a result of both the higher weighted average interest rate and higher average borrowings on a year-over-year basis. The weighted average interest rate in North America was 6% for the fourth quarter of the current fiscal year versus 4.8% in the prior year’s quarter.

Net loss attributable to common shareholders in the fourth quarter of 2017 was $8.1 million versus $3.8 million in the fourth quarter of 2016. Included in last year’s fourth quarter net loss was $2 million of pretax write-downs to portable liquid storage tank container inventories and intangible on other assets primarily on a North American manufacturing operations and $700,000 of pretax charges related to severance costs and CEO retirement compensation in our Asia-Pacific operations. Both periods include approximately $900,000 for the dividends paid on our preferred stock.

For fiscal year 2017, we generated free cash flow before fleet activity of $27.4 million, which when comparing fiscal year 2017 with fiscal year 2016 was impacted by $21 million reduction in cash flow due to the timing collection of trade receivables and satisfaction payables accrued liabilities on our revenues. These working capital items reduced cash flow by $7.3 million in fiscal ‘17 and they positively impacted cash flow by $14 million in fiscal year 2016. Historically, we have experienced significant variation in operating assets and liabilities between periods when conducting our business in due course, so this was not unusual. Free cash flow for fiscal year 2016 was $41.6 million. As a reminder, we will 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 and prior to paying our preferred [ph] stock dividends. For the fiscal year 2017, the company invested net $21.8 million in the lease fleet consisting of $10.7 million in North America and $11.1 million in the Asia-Pacific, comparable to $20.8 million in net fleet investments in fiscal year ‘16, $14.7 million in North America and $6.17 million in Asia-Pacific.

Turning to our balance sheet, at June 30, the company had total debt of $355.6 million and cash and equivalents of $7.8 million with the net that leverage ratio of 5.7x for the trailing 12 months. This compares with a net leverage ratio of 6x at March 31, 2017 and 5.6x at June 30 of last year 2016.

Receivables were $44.1 million at June 30, 2017 as compared to $38.1 million at June 30, 2016. DSO and receivables at June 30, 2017 for our Asia-Pacific and North American leasing operation was 49 and 46 days as compared to 36 and 49 days respectively as of June 30, 2016. At June 30, 2017, our Asia-Pacific leasing operation had in $60 million available to borrow under its $150 million credit facility and our North American leasing operations at $37.7 million available to borrow under its $237 million credit 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

The floor is now open for your questions. [Operator Instructions] Your first question comes from Scott Schneeberger of Oppenheimer. Scott, your line is open.

Scott Schneeberger

Sorry, can you hear me?

Ronald Valenta

Yes, we can hear you.

Scott Schneeberger

Hi, guys. Could you just start now – could you please just speak to the guidance on a segment basis, what – just a little bit more color for what is going to drive your primary segment and then maybe some thoughts on key swing factors that would put you at the high-end or the low-end?

Ronald Valenta

Well, I will go ahead and start off. We are looking at growth in our North American leasing operations as well as betterment of the EBITDA loss in Southern Frac. Currently, in Australia, we are looking at a slightly higher EBITDA from fiscal year ‘17, but we are certainly looking at almost a double-digit growth in our North America leasing operations, if that’s helpful.

Scott Schneeberger

Alright, great. Thanks. Appreciate it. Anything that you are particularly wary of or optimistic about that again could make it better or worse than your outlook?

Ronald Valenta

Yes. I think just regarding the swing factors, I think the energy sector is probably the biggest factor there right now the trends are very positive and looking to be positive for quite some time. So, I think that’s probably the unknown, but very stable and positive at current. I think the core business on the storage side is continuing to be very strong. Of course, we are getting into the retail season and that is a big factor in the one quarter, but again looking positive. So I think the biggest factor would be the energy side, but looking very positive.

Scott Schneeberger

Thanks. Just a routine quickie, Pac-Van pricing environment, anything unique how is that feeling just a general comment? Thanks.

Ronald Valenta

Yes. I think it’s been very consistent, I think it follows the same trends the past couple of quarters and I would say this is very consistent. We don’t see any changes.

Scott Schneeberger

Alright. And I got a couple more actually, you mentioned some of the moving parts in working capital, you feel that we should have a nice healthy free cash flow in fiscal ‘18 with kind of corresponding with EBITDA guidance?

Charles Barrantes

Yes, obviously the biggest change in the working capital was in the Asia-Pacific area. I mean, they work 49 days versus 36, but 36 is really exceptional last year. The typical normal DSA is 40, 45, but that’s really relates to kind of the sluggish economy in Australia, which we feel is going to be slightly improving this fiscal year. We also had additional activity in the building construction sector, which is typically the slower pay 60 days, but we feel that the fiscal year ‘17 will be closer to the normal 40.5 days.

Scott Schneeberger

Thanks. And just lastly from me, buying in the Asia-Pacific region and Royal wolf, obviously it’s going to increase the leverage once that closes, what is the commentary with regard to acquisitions going forward and just the thought on the use of capital? Thanks.

Ronald Valenta

Yes. So I think based on our prepared comments – Scott, this is Ron that we will continue to de-lever in Asia-Pacific. The pipeline is not quite what it is in North America and I think what you would find in North America is that we would continue to be acquisitive and try to do as much on the acquisition side of it as we can assuming those transactions are accretive to us.

Scott Schneeberger

Thanks. And in North America anything unique or interesting you are seeing in the M&A environment good or bad, multiples changing, anything like that Ron? Thanks.

Ronald Valenta

Yes. I think things are pretty similar year-over-year. I think our pipeline is probably a little fuller. But I think pricing and multiples are pretty similar year-over-year.

Scott Schneeberger

Alright, great. Thanks very much for taking all my questions guys.

Ronald Valenta

Thank you.

Operator

Your next question comes from Greg Eisen of Singular Research.

Greg Eisen

Thank you. Good morning.

Ronald Valenta

Hi Greg.

Greg Eisen

Hi, I would like to start asking about the line items for the sales type revenue, I realized you can only sell what customers wanted to buy and if they want to lease as opposed to buy, they will lease, but sales side revenue was down significantly. Could you discuss the sales environment and the results and what were the chief drivers of the down year-over-year sales revenue and what one-time items affected that delta?

Ronald Valenta

Well, I think the largest one is in the Asia-Pacific area Greg. We had some large sales in the transportation sector fourth quarter and throughout the year. I am going to go a little bit by memory, I am going to say somewhere in the vicinity of $12 million, $13 million, but they were low margin sales. So they are below double digit. That was the primary reason for the decrease.

Greg Eisen

That was in the prior year, so that was the tough –

Charles Barrantes

Sorry, large sales in the prior year which obviously were not replicated this year.

Greg Eisen

Okay, understood. Sticking with Royal Wolf for a second, you mentioned twice there was a final settlement of payments from a customer who had gone through restructuring, was this amount in revenue as opposed to a collection of receivables?

Ronald Valenta

It was in leasing revenues and for the fourth quarter it was close to $2 million in Australian, so it’s about $1 million for $1.5 million in U.S. dollars and the resource [indiscernible] is a matter of public credit, it was tightened resources.

Greg Eisen

Sure, I am typing as you speak, $2 million Australian or approximately $1.4 million to $1.5 million U.S.?

Ronald Valenta

In Q4.

Greg Eisen

In Q4, got it. Would you care to comment on – I realize it’s still a very small part of the business, comments on the Southern Frac manufacturing operations, the trends and the result you are seeing in traction in the new products, especially chassis and storm shelters, you have storm shelters and blast proof products which would be perfect for Houston and Miami right now, but could you talk about the market for those products?

Jody Miller

Yes. Sure this is Jody again. I think we have spent a lot of time over the last year trying to get our product mix down to our core. And I think Southern Frac is in a good position right now and another nice trend. We are actually seeing a fair amount of activity around the tank side, so we settled into some specialty tanks, fuel haul or temporary fuel stations and especially tanks that have kept one line completely busy and sometimes two at Southern Frac. And these are a lot higher margin sales than a typical tank. We have also settled into some nice trends on chassis side. We stayed away from the large volume standard chassis and getting into more of the specialty chassis lightweight, but still some nice volume of business and the pipeline continues to stay active there. And in the BRM, which is our newest product which is the blast proof modules that we take into market the last few months we have got a very active pipeline, of course the sales cycle was much, much larger or longer on those products, but our pipeline continues to be more active than it has been. We have got a couple of nice quotes out now, we are optimistic about. And in the storm shelters and some of the trailers I would say is just steady. We continue to sell those each and every month and with the half a dozen or so products we think we have got a nice lineup for sustainability for Southern Frac for a while. And the tank side is very optimistic and we are starting to get some nice sales out of inventory and new builds on the specialty side.

Greg Eisen

Good. If I could turn to the Lone Star business, what if anything has changed since the last conference call in terms of the environment in the Permian basin and are you seeing pricing change much, what – how is the environment, is competition moving into your regions I guess Permian and Eagle Ford based upon the activity there?

Jody Miller

I will say starting with the Eagle Ford, I will say its steady, small increases and we continue to see mild optimistic outlook there. But I think most of the positive outlook is in the Permian. Rates are starting to increase some. I think as tanks become shorter and supply is less then I think that really helps on the pricing side. And as you asked about change, there are some regulatory changes for vapor tight tanks are much more popular and must be used in lot of application which almost all the fleet we purchased in the last several years, we [indiscernible] the vapor tanks, so it puts us a nice advantage over most of the competition. And of course our safety and service record is top notch, so that also helps our largest customer. We get 100% of their work which is the first time that’s happened, they always do split it. So I think from a Lone Star side things are very optimistic. And just one last final point, recent trend is the pipelines and refineries had some struggles with the hurricane, so there has been some bit of a spike in storage of oil until those things regain, so probably short-lived but that is putting more stress on tank availability which also helps the Lone pricing. So I think in all fronts very positive.

Greg Eisen

Okay. Turning to Royal Wolf, would you care to comment about the redeployment of the unutilized accommodation units we have talked about that in the prior quarters and I have realized maybe a broken record here, so I apologize, but is there anything new to say about that?

Jody Miller

We have got – we redeployed some units into New Zealand which we are having some positive response to and we have marketed to many places that we never have in the past and from the management’s feedback over there is they are getting some pretty good interest. I wouldn’t say that we have got deals getting ready to be signed, but I think the pipeline is probably a little more full than it has been in the past on those redeployments. And there have been a little bit of success in New Zealand.

Charles Barrantes

Greg, this is Charles, I just wanted to circle back on the one question to give you a little bit more accurate number. That will be the one-time sales in the Asia-Pacific totaled $14 million U.S. last year, almost $20 million in Australian dollars.

Greg Eisen

More tank sales in Asia-Pacific – $14 million, no about $20 million Australian.

Charles Barrantes

19.4.

Greg Eisen

And that was for the fiscal year, good.

Charles Barrantes

No that was for the last fiscal year that was included. It was not replicated this year.

Greg Eisen

Fiscal year ‘16, right?

Charles Barrantes

Yes.

Greg Eisen

And you mentioned that there is a pipeline of branch locations available to you to really go after in the Australia and New Zealand markets given your saturation there already, as compared to North America where you are only in 47 of the top 100 MSAs, but do you have anything further to say about the potential outside of those two country markets outside of Australia and New Zealand into other countries what would be the opportunity there if any?

Ronald Valenta

Yes. I mean there is certainly an opportunity with that management team to move into new venues. So other natural moves would be Singapore and South Africa. Currently we are in the buyout of the minority interest. And again we are two public companies so they have potential building complex. So I think initially we want to complete that transaction which we alluded to, we think it will ramp up by the end of next month. And then I think we are going to spend a fair amount of our time and their time getting them to focus more of their time on their business than all the effort that comes with being a public company. So I think for the next fiscal you will find us really focusing on our core business and growth. Before we would want to look for new opportunities and other venues, but there is certainly opportunity out there. But again I don’t think that will occur in this fiscal.

Greg Eisen

Okay. And do you have a forecast for how much you plan on spending just on maintenance I think the fleet in terms of capital, actually not the fleet, but the capital spending outside of fleet purchases?

Charles Barrantes

Well, Greg, typically our spending is somewhere typically $1.5 million, $2.5 million per venue, so it would be the same as in the prior between $4 million or $5 million consolidate. And once again maintenance CapEx is our rolling stock systems and that sort of stuff. So actual maintenance for rental ready our rental fleet is expenses incurred.

Greg Eisen

Got it. And just my last question, I will let someone else go, looking at the selling, general and administrative expenses for the quarter, any unusual expenses you would want to call out this quarter or on a year-over-year basis?

Charles Barrantes

I don’t believe so. We – if there was anything unusual that we would segregate it out in terms of when we put adjusted EBITDA, but we obviously incurred tax expenses…?

Greg Eisen

Got it. I will let someone else go. Thank you very much.

Charles Barrantes

Sure Greg.

Operator

Your next question comes from Roresa Mojo of D.A. Davidson?

Roresa Mojo

Good morning. So is there any qualitative or quantitative expectations that are same guidance that kind of reflects the liquid containment business going forward?

Ronald Valenta

Well, I will point – we have liquid containment business in both of our entities in North American lease operations. But I would say that we would expect in fiscal ‘18 a substantial increase as Jody had mentioned. We have got a current run rate what I will all $2.2 million, which is substantially higher than what we have in fiscal year ‘17 was $6 million so.

Charles Barrantes

I will just add that I think the future is optimistic at this point in the current quarter it looks very good.

Ronald Valenta

Utilization is increasing, rates slowly, it’s going to be why I mean we are certainly not – we don’t believe, we are going to get back to the rates that we were back in 2014 anytime soon ever. But utilization is particularly in West Texas. So we – I want to cautiously optimistic, but I will say we are actually optimistic with that sector right, steady growth.

Roresa Mojo

And are you guys are getting to see – are you seeing business accelerate in Australia or New Zealand or can you talk about the market environment?

Ronald Valenta

We think the market has been improved from fiscal year ‘17 is a bit sluggish, but we don’t see substantial growth right now. We are not forecasting that, but we are forecasting some growth.

Jody Miller

And they haven’t seen any big increases on energy side. So that could be a positive return and it has been more sluggish than North American on the energy side.

Roresa Mojo

And one more quick question, I might have missed this, but I had realized in Asia-Pacific the transitional year did that have any impact on the DSO and do you expect that to continue?

Ronald Valenta

I am sorry, what was the question again?

Roresa Mojo

On your day sales outstanding, is that impacted by the transition year for in Asia-pacific this year?

Ronald Valenta

I think it reflected the general sluggish Australian economy plus our increased activity in the building and construction, because the DSO was primarily in the specific North America, DSO was pretty steady. So, it reflected general economy and our entry into building and construction, but we expect the DSO to improve in fiscal year ‘18 from fiscal year ‘17 to more normal levels between 40, 45 days.

Roresa Mojo

Alright, thank you.

Ronald Valenta

Sure.

Operator

Your next question comes from Louise Hernandez, a Private Investor.

Louise Hernandez

Hello, good morning, guys.

Ronald Valenta

Good morning, Louise.

Charles Barrantes

Good morning.

Louise Hernandez

How are you doing? Well, okay, good quarter. I have two questions. Basically, the first one, do you have any estimates on the operating cash flow for 2018, I mean, you have $35 million for 2017 versus $48.8 million the previous year. So, do you have an estimate for this year?

Ronald Valenta

We do the lease. We think it will be closer to fiscal year ‘16 and ‘17.

Louise Hernandez

Okay, so closer to 2016?

Ronald Valenta

Yes. We expect obviously the improvement in the operating cash flow.

Louise Hernandez

Probably somewhere between 45 and 50.

Ronald Valenta

You say so, Louise?

Louise Hernandez

Alright, alright, I am just saying. And okay, the second question is regarding the debt that you will issue to buy the 49% Royal Wolf?

Ronald Valenta

Yes.

Louise Hernandez

I believe on the conference call, the interest rate was going to be around 12%, is that right?

Ronald Valenta

Yes, the coupon rate is 11.9% on the day.

Louise Hernandez

Right. So, my question is, is that like a bridge financing, are you guys going to refinance that as soon as you can or what?

Ronald Valenta

It is, Louise, the financing is 5 years and it’s two pieces, $26 million apiece, which is convertible at $8.50 of the GFN stock and there is a $54 million term piece that will be paid off at the end of 5 years. I can’t predict the future but we have no intentions at this point to refinance it, the perspective to be pretty much within for the full 5 years.

Louise Hernandez

Alright. So, on the on the 54 that you expect to payoff don’t you consider the interest rate a little high to not refinance?

Ronald Valenta

Well, it is to – look, if we can we certainly will refinance, but that is not the intention that is not the outlook at this point in time. That is pretty much what the market is for this type of financing in this acquisition in that sector.

Louise Hernandez

Okay, alright.

Ronald Valenta

And part of my explanation, Louise, I will just say is we are limited to a great extent of what we can do in North America by our bond indentures in our credit facility, senior credit facility with Wells Fargo.

Louise Hernandez

Okay.

Ronald Valenta

Well, this will issue a lot of equity, which I don’t think at this price we have any intentions of doing, it’s pretty much going to stay in place for 5 years in the Asia-Pacific.

Louise Hernandez

Please don’t do that.

Ronald Valenta

I am talking you might think that Louise.

Louise Hernandez

Alright. And so, yes basically financing for Australia, okay and then my question was I couldn’t participate on the conference call dedicated to Royal Wolf. I just wanted to see your opinion on what we are doing now and just the simple share repurchase plan versus what’s going on. I just wanted to see your opinion on that decision?

Ronald Valenta

Yes, I know at this point, Louise, it’s Ron, I don’t think we are contemplating any share repurchase at this point. I think our focus this year is to capture as much growth as we can in North America to de-lever as quickly as we can in Australia. And so right now our capital allocation this fiscal would not indicate the buyback program, but it’s certainly something that we discussed in our board sessions every fiscal year at least one time if not more. But again I think our focus this year is because of the spike in leverage in acquiring the minority, we think the most proven thing to do is to de-lever in Australia, while we are capturing as much opportunity as we can on an accretive basis in North America.

Louise Hernandez

Yes, Ron. Thanks for your answer. I meant on the decision on the 49% of the Royal Wolf, I mean, you guys decided buy it out through that instead of repurchase – instead of through a share repurchase plan, I don’t know would pickup some years, but I mean, it’s like…

Ronald Valenta

Yes, I think between the currency being relatively low during the time we have been down there. So, over the last decade we have seen the Australian dollar go from $0.60 to almost $1.30. So, we are at the low end of the cycle. We were able to get the financing. We certainly think the pricing is very attractive. So, we are effectively buying out the minority at the price we sold them the shares at 6 years ago. And it’s very difficult to manage 2 publics in the public. We do have a fiduciary responsibility to respect their shareholder groups and they are definitely different. So, we have to work with the independent board on any buybacks and that clearly have been a discussion in the past and that always that well received. So, we did not have even though we had a majority of interest we still had to be respectful of the minority in our fiduciary responsibility to that shareholder group. So we think the best decision was to take it all out versus piecemealing over a prolonged period of time.

Louise Hernandez

Alright, alright. Thank you. That definitely answers my question. Alright, thanks for your question and answers and talk to you next quarter.

Ronald Valenta

Thank you, Louise. Have a good day.

Charles Barrantes

Thank you.

Louise Hernandez

Thank you.

Operator

Your next question comes from Neil Gagnon of Gagnon Securities.

Neil Gagnon

Good morning, folks. On the liquid containment business, you pointed out that Lone Star had $2.2 million of EBITDA in Q4, but Pac-Van also has some liquid containment business. Is that correct?

Charles Barrantes

Yes, it’s correct.

Neil Gagnon

Okay. Now, you stated that the price increase year-over-year was, let me say this in a minute, is up 32%, but was that measuring the June 30 price versus June 30 a year ago and was that price effective for the whole quarter?

Charles Barrantes

So, Neil, again are you looking for the average price for the liquid containers at Pac-Van or overall or?

Neil Gagnon

No, what I am looking for Chuck is you gave a 32% increase June versus June, but I am wondering what was the effective price increase during the quarter, was it that number or some reduction of that number?

Charles Barrantes

Was the 30% in rate or utilization?

Ronald Valenta

In rate, but that one was full year number, but not all of that was in the fourth quarter, it was spread over a quarter from quarter-to-quarter. Throughout the year, we got 32%. It wasn’t all realized in the fourth quarter.

Neil Gagnon

Right. I got that. So what I am thinking is 32% number, you said it was up 15% over the prior quarter, but again this is a number measured at the end of the period and the actual effective number will be some fraction of that, maybe half or something like that just a guess. So as we go forward assuming things stayed the same, we would get an acceleration because of this better utilization and price?

Charles Barrantes

Correct. Yes, we certainly did not get a full year impact in the past fiscal. And as things settle and remain the same, we should start seeing the full impact on the quarters rolling forward assuming there are no other changes. That’s absolutely correct.

Neil Gagnon

Good. So I want to make sure I was correct on that. And what you have and we will see this in two places, we will see it Lone Star, but we will also see it in the section or the portion of Pac-Man or they are a leasing containers themselves?

Charles Barrantes

Correct.

Neil Gagnon

Okay. Get us a little discussion about what’s going on in this container business overall and it’s during the great downturn that everyone else just run away from the business, is there any new players in this business or has it begun to consolidate?

Ronald Valenta

I would say there is nothing changed in recent quarters. I think the big players are still out there, you probably saw the news on the William Scotsman piece, but I don’t think there has been any material change within the players or industry. I think everybody is having pretty positive growth for the most part. I think the construction industry has a very positive outlook as well as commercial and industrial. So I think there has not been any real big change, but we will see what the future brings as far as consolidation.

Neil Gagnon

That answers what I was looking for. Thank you.

Charles Barrantes

Thank you, Neil.

Ronald Valenta

Thanks Neil.

Operator

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

Ronald Valenta

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

Operator

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