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Edited Transcript of GFN earnings conference call or presentation 5-May-20 3:30pm GMT

·31 mins read

Q3 2020 General Finance Corp Earnings Call PASADENA May 8, 2020 (Thomson StreetEvents) -- Edited Transcript of General Finance Corp earnings conference call or presentation Tuesday, May 5, 2020 at 3:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Jody Miller General Finance Corporation - President, CEO & Director * Chuck Barrantes General Finance Corporation - Executive VP & CFO * Christopher A. Wilson General Finance Corporation - General Counsel, VP & Secretary ================================================================================ Conference Call Participants ================================================================================ * Brian Gagnon Gagnon Securities LLC - Senior Partner & Portfolio Manager * Evan Dreyfuss Iron Road Capital Partners, LLC - Portfolio Manager * Luis Hernandez * Zane Adam Karimi D.A. Davidson & Co., Research Division - Research Associate ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Welcome to General Finance Corporation's Earnings Conference Call for the Third Fiscal Quarter ended March 31, 2020. Hosting the call today from the company's corporate offices in Pasadena, California, are Mr. Jody Miller, President and Chief Executive Officer; 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. (Operator Instructions) It is now 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. -------------------------------------------------------------------------------- Christopher A. Wilson, General Finance Corporation - General Counsel, VP & Secretary [2] -------------------------------------------------------------------------------- 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 approaches, increases in interest rates for our variable interest rate indebtedness, our ability to raise capital or borrow additional funds, the availability of sufficiently qualified employees to staff our businesses, 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, the disruption of operations from catastrophic or extraordinary events, including viral pandemics such as the COVID-19 coronavirus, 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 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 discuss certain non-U. S. GAAP financial measures, such as adjusted EBITDA. A reconciliation of how we define and arrive at adjusted EBITDA is in our earnings release and will be included in our quarterly report on Form 10-Q. Now I turn the call over to Jody Miller, President and Chief Executive Officer. Jody, please go ahead. -------------------------------------------------------------------------------- Jody Miller, General Finance Corporation - President, CEO & Director [3] -------------------------------------------------------------------------------- Thank you, Chris. Good morning, and we appreciate you joining us today for our third quarter fiscal year 2020 conference call. I will begin with a brief discussion of our operations. Then our CFO, Chuck Barrantes, will provide a financial overview and our outlook for the remainder of the fiscal year. Following his remarks, we'll open up the call for questions. Before I turn to the results, I want to provide an update on our company and managing through this unprecedented global crisis created by the COVID-19 pandemic. First, I'd like to say that health and safety of our employees is a foremost concern, and I want to personally thank all of our dedicated employees for all their efforts through this challenging time. We are considered an essential business, and therefore, our locations remained open across all of our venues. We have implemented company-wide business plans with flexible work practices, such as work-from-home options, working in shifts, practice social distancing between employees and conducting meetings over the telephone and online. Our recently introduced online rental and live chat has also aided in our customer response times. The economic fallout from the pandemic is both swift and severe. It has impacted sectors of economy more than others, but has also created new opportunities as well. Our core container business in both North America and the Asia Pacific is holding up very well. Overall, leasing demand has remained steady across most sectors, and we are seeing some new opportunities in temporary storage and office related to the COVID-19 pandemic. Some of these opportunities are in the retail, medical and industrial sectors. Ground level offices continue to be the highest demand across all of our core product offerings. With respect to our product sales business, the typical demand has softened as expected in this uncertain economic environment, but offset by some COVID-19-related sales. Going forward, we will continue to monitor trends that impact our business, such as nonresidential construction starts, the retail remodel business, the hospitality industry and special events. We are hopeful many of these projects in events are delayed and not canceled entirely. Our liquid containment business, which is primarily operating in Texas through Lone Star, is facing more extreme adverse conditions. The significant drop in oil prices due to the lack of demand and oversupply has severely disrupted the oil and gas sector. With the corresponding pullback in customer production levels, we have experienced pressure on both utilization and pricing. We have implemented measures to control costs without sacrificing our service levels or our safety. This strategy served us well in the last downturn as we emerged from that period with more business from both existing and new customers. We are prepared to weather this crisis and expect to be well positioned to serve our primarily blue-chip customers when the oil market normalizes. One potential near-term opportunity is oil storage in our tanks. We are receiving many inquiries for temporary oil storage at this time. That being said, the rates and terms could be less than our normal activity. On the manufacturing side, our Southern Frac business has been fairly active during this period as we continue to receive orders for GLO modifications, both in the traditional uses as well as the COVID-19-related applications. In summary, while we're unable to predict the severity or the duration of the economic fallout caused by the pandemic, our experienced management team has weathered challenging times in the past, and we are fortunate to have entered this crisis with a stronger balance sheet and liquidity than we've ever had in the history of our company. Our business remains resilient due to the type of fleet we lease, and we're able to cut discretionary fleet investment and acquisition, which enables us to generate free cash flow and reduce debt. Our hearts and support go out to everyone impacted by the crisis, particularly the health care providers, the first responders, and the essential workers who are all on the front lines. We remain committed to helping our employees and our customers get through this extremely challenging time, and we look forward to seeing the country gradually reopen for business and return to a more normal way of life. Now turning to a brief overview of our results for the quarter. Our core North American leasing operation, again, delivered improved quarterly performance. Pac-Van generated an 8% year-over-year increase in leasing revenues, with increases across virtually all sectors. Our containerized fleet, once again, led the way with 11% growth in rental revenue, driven mainly by favorable product mix and moderate price increases. Offsetting the strong growth of Pac-Van was the continued softness in the liquid containment business at Lone Star, which recorded lower year-over-year results for the quarter. As I mentioned earlier, we are being proactive in cost controls, and hopeful we'll be able to continue to generate operating cash flow through the crisis. Our North American manufacturing operations posted improved results for the quarter, primarily due to a large sale of specialty trailers made to an external customer. Now turning to the Asia-Pacific region. Our third quarter results in the Asia-Pacific region were higher year-over-year in local currency, but were adversely impacted by the declining Australian dollar relative to the U.S. dollar. Leasing revenues increased in local currency, and was up across most sectors, driven by higher year-over-year average lease rates. Sales revenues were up nicely, mainly due to the result of two large sales in the transportation sector. Our Royal Wolf team remains focused on helping its customers through the disruption caused by the pandemic. It appears that the Royal Wolf markets will return to a more normalized economy before the U.S. as the number of new cases of the virus is on the decline. New Zealand may take a bit longer as it has implemented more restrictive business and social distancing policies, but also has pent-up demand for the future. To conclude, our third quarter performance was generally in line with expectations, but not without its challenges. Our fourth quarter will prove even more challenging because of the disruption caused by COVID-19. We are closely monitoring the situation, and remain focused on preserving our liquidity and minimizing the impact on our profitability, while assuring the safety of our employees. Our senior management team is highly experienced, and we have every reason to believe we will emerge from this crisis as a stronger organization. I'll now call -- turn the call over to Chuck Barrantes for his financial review and our outlook for the remainder of the fiscal year. -------------------------------------------------------------------------------- Chuck Barrantes, General Finance Corporation - Executive VP & CFO [4] -------------------------------------------------------------------------------- Thanks, Jody. 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 our website. And I encourage investors and other interested parties to read it as it contains a substantial amount of information about our company, some of which we will discuss today. Turning to our financial results for the record. Total revenues were $90 million in the third quarter of fiscal year 2020 compared to $86.2 million for the third quarter of fiscal year 2019. Leasing revenues were $57.8 million, down modestly from $59.6 million in the prior year's quarter. And comprised 66% of total non-manufacturing revenues for the quarter, down from 70% in the prior year. Leasing revenues, excluding the oil and gas sector and foreign currency exchange rates, increased 6%. Non-manufacturing sales revenues were $29.7 million in the quarter, up from $25.2 million in the prior year period. In our North American leasing operations, revenues for the third quarter of fiscal year 2020 totaled $57.1 million, a decrease of less than 1% from the third quarter of fiscal year 2019. Leasing revenues decreased by 2% on a year-over-year basis. The decrease in leasing revenues was primarily in the oil and gas sector, virtually all attributable to Lone Star, and was significantly offset by increases across the board in all the other sectors, particularly construction. Sales revenues increased by approximately 6%, primarily in the industrial, commercial, mining and education sectors, while being partially offset by a decrease in the construction sector. Revenues in our North American manufacturing operations for the third quarter were $3.5 million and included the company sales of $1 million from products sold to our North American leasing operations. This compares to $2.7 million of total sales, including intercompany sales of $1.3 million during the third quarter of fiscal year 2019. As Jody mentioned, our manufacturing operations recorded a large sale consisting of specialty trailers to one customer during the quarter, which totaled $1.1 million. In our Asia-Pacific leasing operations, revenues for the third quarter totaled $30.4 million as compared to $27.6 million for the third quarter of fiscal year 2019, an increase of 10%. On a local currency basis, total revenues increased by 19%. The increase in revenues is primarily due to 2 large sales in the transportation sector as well as a 2% increase on a local currency basis and leasing revenues. Consolidated adjusted EBITDA was $23.6 million in the third quarter of 2020 compared to $24.1 million in the prior year's quarter, and adjusted EBITDA margin, as a percentage of total revenues, was 26% for Q3 fiscal 2020, down from 28% in Q3 of the prior year. In North America, adjusted EBITDA for our leasing operations was $16.7 million in the third quarter compared to $17.3 million for the year ago quarter. Adjusted EBITDA at Pac-Van increased by 11% to $13.5 million from $22.2 million in the third quarter of fiscal year 2019. Adjusted EBITDA at Lone Star decreased to $3.2 million from $5.1 million in the year ago quarter. For our manufacturing operations on a stand-alone basis, adjusted EBITDA was $493,000 for the quarter compared to last year's third quarter adjusted EBITDA of $17,000. Asia-Pacific's adjusted EBITDA for the quarter was $7.7 million compared to $8.1 million in the third quarter of fiscal 2019, a decrease of approximately 5%. On a local currency basis, adjusted EBITDA increased by approximately 4%. Interest expense for the third quarter of 2020 was $6 million, down $4.2 million from $10.2 million in the third quarter of last year. The decrease was comprised of a reduction of $800,000 in North America and $3.4 million in the Asia-Pacific. In North America, the lower interest was due to both lower average borrowings and lower weighted average interest rate of 5.4% versus 6.2% in the year ago period. In the Asia-Pacific area, the lower interest expense was also due to lower average borrowings and a lower weighted average interest rate of 6.2% compared to 13.7% in the prior year quarter as well as a weaker Australian dollar between the periods. Net loss attributable to common shareholders in the third quarter was $9.5 million or $0.32 per diluted share compared to a net loss of $1.3 million or $0.04 per share in the year ago quarter. Including in these results were noncash charges of $11.3 million and $1.1 million in fiscal years 2020, '19, respectively, for changes in the valuation of the stand-alone bifurcated derivatives. Both periods include $922,000 for the dividends paid on our preferred stock. For the first 9 months of fiscal 2020, we generated net cash from operating activities of $53.1 million, up from $28 million in the prior year period, and mainly the result of improved profitability and working capital management. Turning to our balance sheet. At March 31, the company had a net leverage ratio of 3.6x for the trailing 12 months, which is a modest improvement from the net leverage ratios at both September 30 and June 30, 2019. We've worked hard to reduce our cost of capital and enhance our financing flexibility over the past couple of years, and are now in a stronger position entry into this period of economic disruption. As Jody mentioned, we are very focused on generating cash flow and maintaining ample liquidity during this crisis, and therefore, implementing restrictions or curtailing investing and spending and initiating other cost-cutting measures. Turning to our company-wide outlook for the remainder of fiscal year 2020. On our second quarter earnings conference call, we stated that consolidated revenues for the fiscal year 2020 were expected to be in the range of $365 million to $375 million and that consolidated adjusted EBITDA was expected to be in a range of minus 2% to minus 8% in FY '20 from fiscal year 2019. While we are closely monitoring the situation, the impact of COVID-19 -- of the COVID-19 pandemic is fluid, continues to evolve, and therefore, we cannot reasonably predict at this time to the extent to which our results of operations, liquidity and financial condition will ultimately be impacted beyond fiscal year 2020. However, based on our year-to-date results, including a weaker Australian dollar, and our view of the impact of lower oil prices and the pandemic in our business in the fourth quarter, we now expect the consolidated revenues for the fiscal year 2020 will be in the range of $347 million to $355 million, and that the adjusted EBITDA decrease will be in the range of minus 12% to minus 14% in fiscal year 2020 from fiscal year 2019. This now concludes our prepared comments, and I would like to turn the call back to the operator for the question-and-answer session. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from the line of Zane Karimi of D.A. Davidson. -------------------------------------------------------------------------------- Zane Adam Karimi, D.A. Davidson & Co., Research Division - Research Associate [2] -------------------------------------------------------------------------------- First off, on taxing traditional end-markets, which sectors are you seeing strengthening? And similarly, where are you seeing some softening? I know we talked about Lone Star. With regards to Lone Star, on reduced oil and gas activity through Texas, how should we think about Lone Star through '21 if we can even look that far? And can you provide some more specifics on Lone Star's rates utilization and the general demand or sentiment in those markets? -------------------------------------------------------------------------------- Jody Miller, General Finance Corporation - President, CEO & Director [3] -------------------------------------------------------------------------------- Yes. So first, start with your first question on Pac-Van. As I stated in the call, I think the health industry, obviously, has seen a nice increase, the application of our ground level office and storage. But there's also some uptick in certain retail applications where extra storage is needed for product. And then in industrial, a lot of the plants and businesses that have a large consolidation of workers, they have extra storage and/or GLOs there for testing and screening and offices outside before people go in, those type of things. So it's really kind of a mix across the board for storage and GLOs, but that's probably where the biggest uptick is. One thing that has happened is our activity, typically the middle of April, our construction season usually starts to really take off. We haven't seen that as much this year, but we've also seen less off hires, so less fleet coming back, longer durations. So it's been somewhat offset. But we're pretty happy with our core containerized business in both venues holding really stable and doing well. It's the energy side with the biggest struggle. And then your question on Lone Star. We've, obviously, seen some utilization drops through this downturn and rates. We are getting a lot of inquiries, as I stated on the call, for storage. There's only some units that have been out, maybe 100 or so that are out for storage, but we've got way more quotes out than we have tanks. And I think people are kind of waiting to the last minute to use that as an alternative storage method, but we do feel like some of that is going to be coming down the pike pretty shortly. But as far as the outlook on Lone Star, I think it's hard to predict without knowing the oil prices and activity. We're just really buckled down, watching costs, trying to maintain our margins. And so we'll be in a really good position to come back when things improve. -------------------------------------------------------------------------------- Zane Adam Karimi, D.A. Davidson & Co., Research Division - Research Associate [4] -------------------------------------------------------------------------------- And how is the situation in China presenting any headwinds for you in terms of sourcing the new units? Or any sort of indirect impact to your Asia-Pacific business that you're seeing this quarter? -------------------------------------------------------------------------------- Jody Miller, General Finance Corporation - President, CEO & Director [5] -------------------------------------------------------------------------------- Not as much yet. Obviously, there's a lot of tourism in the Australia, New Zealand area coming from the Asia side. And some of that, I'm sure, will have some effect. But our leasing revenue at Australia has actually improved most weeks since the pandemic has started. They have a lot of product that fits nicely into some of the new opportunities in Australia and New Zealand. They do a fair amount of sales, as you guys know, and the sales business, technical sales are still very good, but just your normal retail, flip sales are obviously down. But our core rental business has actually improved since the pandemic started. But the sales business is definitely down. -------------------------------------------------------------------------------- Zane Adam Karimi, D.A. Davidson & Co., Research Division - Research Associate [6] -------------------------------------------------------------------------------- Okay. And final question here, but is there a way or how should we think about the impact of declining fuel costs on your delivery services and the potentials from margin opportunities therein? -------------------------------------------------------------------------------- Jody Miller, General Finance Corporation - President, CEO & Director [7] -------------------------------------------------------------------------------- Yes. I mean, on the trucking side, you're in the 20%, 25% margin, most of the time. So fuel does play a role in it, but it's not going to make a huge material difference. It's only one component versus the labor, maintenance, cost of vehicles and everything else. So it obviously is going to help our margin, but it's not going to be something that's that material across the board. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- Next question comes from the line of Brian Gagnon of Gagnon Securities. I'm sorry, that question has been withdrawn. Your next question comes from Luis Hernandez. -------------------------------------------------------------------------------- Luis Hernandez, [9] -------------------------------------------------------------------------------- Yes. All right. Well, I have a few questions. I guess the first one would be on -- related to -- given this environment, what are your thoughts on capital allocation, fleet expansion, acquisitions? -------------------------------------------------------------------------------- Jody Miller, General Finance Corporation - President, CEO & Director [10] -------------------------------------------------------------------------------- Yes. We basically cut that all off. I wouldn't say that there isn't a couple of exceptions on the fleet side on GLOs. As we said, our demand is still very, very good on the GLOs and continues to be strong. So there's a little bit of trickle of CapEx going into that product line, but nothing really else. And we've taken proactive roles on cost cutting. And we've kind of put on hold acquisitions. We would look at anything that came our way, opportunistically. But we're not necessarily out pursuing those at this time and going to wait to see how everything kind of shapes up and how quick we can get back to more normalized comp economic conditions. -------------------------------------------------------------------------------- Luis Hernandez, [11] -------------------------------------------------------------------------------- Okay. And where is the demand for GLOs coming from? -------------------------------------------------------------------------------- Jody Miller, General Finance Corporation - President, CEO & Director [12] -------------------------------------------------------------------------------- Mainly from Southern Frac is our #1 supplier on those, but we do have other suppliers as well. But the demand is very high still for the GLOs. So we don't want to slow the growth there, but we're cautious to make sure that we don't buy any more than we have to. But it's very, very little fleet CapEx at this point. We've got everything kind of shut down. -------------------------------------------------------------------------------- Luis Hernandez, [13] -------------------------------------------------------------------------------- Okay. All right. And regarding on working capital requirements, do you expect that -- I would assume, those requirements would decrease given the environment. Is that right? -------------------------------------------------------------------------------- Chuck Barrantes, General Finance Corporation - Executive VP & CFO [14] -------------------------------------------------------------------------------- I would say that's probably an overall fair comment, Luis. It's a general comment, yes. Specifically, I mean, it depends on the situation and the customer, the (inaudible) sort of thing. Through the end of March for our third quarter, we did not have a significant impact from COVID-19, and we have not seen a significant noticeable deterioration in receivables, but obviously, we expect some, which we intend to monitor. -------------------------------------------------------------------------------- Luis Hernandez, [15] -------------------------------------------------------------------------------- Okay. And do you expect any contraction at all coming from construction? I mean, is this prices affecting construction clients? -------------------------------------------------------------------------------- Jody Miller, General Finance Corporation - President, CEO & Director [16] -------------------------------------------------------------------------------- Yes. I mean, we're yet to see the full effects. So the good thing about it is there are a lot of units that are staying out longer. So the duration and stickiness of the units on the construction side is there. But we obviously have not seen the normal spring start-up on new jobs that we typically see this time of year. So it's kind of yet to be determined. If you look at Dodge, McGraw-Hill, they're predicting somewhere around a 15% decline on new starts. We're hopeful that the remodels are just delayed and not canceled, as well as most of the construction work. So we're still hopeful it's going to be coming, it's just delayed, and that's kind of what most people are looking at as far as a prediction, but it's yet to be told, to be honest. -------------------------------------------------------------------------------- Luis Hernandez, [17] -------------------------------------------------------------------------------- Right. Okay. And then on Lone Star. You mentioned, and there is some demand for oil storage, I would saying that's definitely the case. So could you tell us a little bit about -- you mentioned it's lower rates and -- but given the extra limit in oil storage capacity and a huge demand for it. I just want to understand that a little better. -------------------------------------------------------------------------------- Jody Miller, General Finance Corporation - President, CEO & Director [18] -------------------------------------------------------------------------------- Yes. It's our perception that we've had a tremendous amount of inquiries. So not only from our customers, but from other customers as well that we haven't dealt with through normal activity. And there's also speculators looking to take advantage of cheaper oil and companies that don't have anywhere to store it. So we've quoted a tremendous amount of tanks, way more tanks than we have in inventory. We've only had a couple of customers so far take tanks for oil storage, but it's extremely active. So I think our perception is they're kind of waiting to the last minute. Obviously the tanks can be mobilized very quickly, which is a big advantage of our product versus trying to build other type of storage. So we can set up tanks literally within a day, and they know that. So I don't think they'll make the call until they have to. We've tried to press upon them that we have a lot of quotes out there and there may not be enough tanks to go around if all of it comes to ration, but I think people are just waiting to see if the consumption picks up and if they can get by without storage tanks, they obviously will. But if they have to, our portable tanks make a very nice solution for them if it gets to that point. So again, we've only had a couple of customers take them just over 100 tanks out for storage, but lots of activity around the inquiry side. -------------------------------------------------------------------------------- Luis Hernandez, [19] -------------------------------------------------------------------------------- Right. Right. But they are a good solution for storing oil, right? They don't have any disadvantage, right? -------------------------------------------------------------------------------- Jody Miller, General Finance Corporation - President, CEO & Director [20] -------------------------------------------------------------------------------- No, absolutely. It's, again, very quickly set up, portable, obviously safe, can put containment around them very quickly, just like on a site. So it's a very good solution. If they're storing oil in the field, I think their preference is to store it closer to their refineries and get it through the pipelines. But as those pipelines are restricted in inflow and everything fills up downstream, then I think this is a great solution for upstream storage. -------------------------------------------------------------------------------- Luis Hernandez, [21] -------------------------------------------------------------------------------- Right. Right. Okay. And then finally, do you expect -- and I know it's a little forward-looking, but do you expect this crisis on oil, is it going to affect Lone Star like the previous crisis in 2014, 2015 effected. I remember, EBITDA dropping to an all-around $5 million, $6 million or something. Do you expect this time around to be similar, worse, better? -------------------------------------------------------------------------------- Jody Miller, General Finance Corporation - President, CEO & Director [22] -------------------------------------------------------------------------------- Yes. I mean, it's really, really hard to predict. Right now on current conditions, we feel like it's probably getting into those levels. Just because everyone is stacking frac crews and stacking rigs, and obviously, depending on what happens with the storage side to affect it as well. But our hope is, and what our customers, I think their crystal balls are saying is that as soon as the economic environment changes and people start getting more normalized in a couple -- in a few months, then consumption is going to shoot back up. And with all the production levels low, it should drive oil prices up and get things more active again. So my guess is, again, just with the facts that we have now and that's changing every hour, every day, every hour, our prediction is that it is going to be a pretty catastrophic drop, but fairly short-lived in the fact that we think things will bounce back a lot faster than last time. But there's definitely a slowdown in the oil fields, currently. -------------------------------------------------------------------------------- Luis Hernandez, [23] -------------------------------------------------------------------------------- Yes. Let's hope for that. And then, sorry, to finalize, Chuck, could you update us on the bifurcated derivatives converted? I thought that was already gone. But it ... -------------------------------------------------------------------------------- Chuck Barrantes, General Finance Corporation - Executive VP & CFO [24] -------------------------------------------------------------------------------- No. Well, there was a conversion, but as part of the -- part of that convertible note, the $26 million, there is a minimum rate of return feature of 1.75x. And that's always been there from the beginning. So we've always had this derivative. And so effectively, the way it works, it's based on the realized sale of stock, less interest paid. It has to be 1.75x of the $26 million. So it fluctuates based on the price of our stock, really. It is what it is. Of course, they would have to actually want to sell the stock of Bison and its affiliates. They've indicated that they have not. So they'll stick with us. So -- but that's what it represents. -------------------------------------------------------------------------------- Luis Hernandez, [25] -------------------------------------------------------------------------------- But it's all noncash, right? -------------------------------------------------------------------------------- Chuck Barrantes, General Finance Corporation - Executive VP & CFO [26] -------------------------------------------------------------------------------- What's that? -------------------------------------------------------------------------------- Luis Hernandez, [27] -------------------------------------------------------------------------------- It's all noncash expenses. -------------------------------------------------------------------------------- Chuck Barrantes, General Finance Corporation - Executive VP & CFO [28] -------------------------------------------------------------------------------- The derivative calculation is noncash. Correct. -------------------------------------------------------------------------------- Luis Hernandez, [29] -------------------------------------------------------------------------------- Right. Right. So I guess it would only become cash if they decide to sell part of it or something? -------------------------------------------------------------------------------- Chuck Barrantes, General Finance Corporation - Executive VP & CFO [30] -------------------------------------------------------------------------------- Yes. Yes. If they decide to sell the stock for whatever reason. At this point, they have not indicated. -------------------------------------------------------------------------------- Operator [31] -------------------------------------------------------------------------------- (Operator Instructions) Your next question comes from Brian Gagnon of Gagnon Securities. -------------------------------------------------------------------------------- Brian Gagnon, Gagnon Securities LLC - Senior Partner & Portfolio Manager [32] -------------------------------------------------------------------------------- Do you guys think that Lone Star stays EBITDA positive at this point similar to what you guys were able to achieve last time? -------------------------------------------------------------------------------- Jody Miller, General Finance Corporation - President, CEO & Director [33] -------------------------------------------------------------------------------- Yes. I mean, we're obviously hopeful that's going to happen. We've taken a very proactive approach on expenses. So our utilization is kind of holding in there. I think there's no question they will if the storage tank scenario plays out and the tanks go out for storage, wouldn't be an issue at all. If you read all the releases from all the producers and things, I think there's still flow back. Again, we concentrate on the completion and production side. So these companies don't want to shut their wells completely down because, one, there's penalties involved with that. And two, it's extremely expensive to refrac the wells, and they typically don't get the production out of the wells that they were getting before when they shut them down. So I think there's always going to be work there. We deal with some of the best customers there. So we're very hopeful that we can, for sure, stay cash flow positive through this just like last time and that the storage scenario, how they could be a lot more positive. -------------------------------------------------------------------------------- Brian Gagnon, Gagnon Securities LLC - Senior Partner & Portfolio Manager [34] -------------------------------------------------------------------------------- That would be terrific. With FY '20 almost over, do you have thoughts, I'm sure you have thoughts, about your free cash flow for '21 and where you'd like to see your debt levels go down to? Because it seems like you're in a big deleveraging mode at the moment. -------------------------------------------------------------------------------- Chuck Barrantes, General Finance Corporation - Executive VP & CFO [35] -------------------------------------------------------------------------------- Yes. I would say that certainly from absolute dollar basis, we will be reducing our debt. We expect our leverage to stay under 4x. And the reason I can't be more precise, it just depends upon the profitability portion of it, but we would be generating free cash flow, and we will be reducing our debt -------------------------------------------------------------------------------- Brian Gagnon, Gagnon Securities LLC - Senior Partner & Portfolio Manager [36] -------------------------------------------------------------------------------- Chuck, do you think it's possible that this company could get down to $300 million of debt in the next year? -------------------------------------------------------------------------------- Chuck Barrantes, General Finance Corporation - Executive VP & CFO [37] -------------------------------------------------------------------------------- Brian, I'll say it's possible. I won't go any further than how likely that is, but honestly, there's certainly a possibility. A lot of it depends, obviously, on the business itself and the profitability, how much free cash flow we generate. But certainly, at the minimum restrictions and effectively curtailment of investing in spending and acquisitions, we would expect to generate a significant amount of cash flow. -------------------------------------------------------------------------------- Operator [38] -------------------------------------------------------------------------------- (Operator Instructions) Your next question comes from Evan Dreyfuss of RMB Capital. -------------------------------------------------------------------------------- Evan Dreyfuss, Iron Road Capital Partners, LLC - Portfolio Manager [39] -------------------------------------------------------------------------------- I had a quick question. You mentioned that you want to preserve liquidity, which makes a lot of sense. But I've noticed, I think, the last quarter, you've made some adjustments to your credit line at -- with Wells Fargo to, I guess, to be able to refinance your bonds that come due in July of '21. They're going to be callable at par coming up in the next couple of months. And with rates where they are, I'm curious when will you take those out or is that going to hurt your liquidity too much to do it? -------------------------------------------------------------------------------- Chuck Barrantes, General Finance Corporation - Executive VP & CFO [40] -------------------------------------------------------------------------------- Well, yes, this is Chuck. Yes. Well, the original plan was obviously to -- into the summer to look at refinancing the senior notes. Something happened since the time that we increased the facility in February until now or at least came -- it didn't happen. It became more pronounced. So the plan is still to refinance in one way, shape or form. It will depend upon the markets we had envisioned a couple of months -- a few months ago to be below the current interest rate. It remains to be seen what the credit markets are like in the summer and in the fall and may be even in the spring of the following year of calendar '21 to see where we are. But yes, I mean, it's very possible that we would rely on the Wells Fargo facility, the North American facility to help and refinance at least a portion of that, the senior notes. But I can't answer the question because I don't know what the credit market is going to look like in the next several months. -------------------------------------------------------------------------------- Operator [41] -------------------------------------------------------------------------------- There are no further questions at this time. I would now like to turn the call over to Mr. Jody Miller, President and CEO, for closing remarks. Please go ahead, Mr. Miller. -------------------------------------------------------------------------------- Jody Miller, General Finance Corporation - President, CEO & Director [42] -------------------------------------------------------------------------------- Thank you, operator. I would like to thank you for joining the call today. We appreciate your continued interest in General Finance Corporation, and hope everyone remains healthy and safe during these challenging times. Have a great day, and we look forward to speaking with you on our fiscal year-end conference call. Thank you. -------------------------------------------------------------------------------- Operator [43] -------------------------------------------------------------------------------- Thank you for participating in General Finance Corporation's conference call. You may now disconnect your lines, and have a wonderful day.