Financial and Business Summaries
- Lease rental income increased $1.2 million (or one percent) from the prior quarter to $108.8 million for the quarter;
- Gains on sale of containers, net increased $1.8 million (or 45 percent) from the prior quarter to $5.9 million (or $0.10 per diluted common share) for the quarter;
- Container impairments declined $3.1 million (or 81 percent) from the prior quarter to $0.7 million (or $0.01 per diluted common share) for the quarter;
- Adjusted EBITDA(1) of $91.2 million for the quarter, an increase of $9.1 million (or 11 percent) from the prior quarter;
- Net loss attributable to Textainer Group Holdings Limited common shareholders of $9.4 million for the quarter, or $0.16 per diluted common share, an increase of $2.4 million (or 34 percent) from the prior quarter mainly due from the write-off of unamortized deferred debt issuance costs and bond discounts;
- Adjusted net loss(1) of $1.2 million for the quarter, or $0.02 per diluted common share, an improvement of $7.9 million (or 87 percent) from the prior quarter;
- Utilization averaged 96.3 percent for the quarter and is currently at 96.6 percent, an improvement of 160 basis point over the prior quarter average; and
- Approximately $275 million of capex year-to-date in 2017.
“We continue to see strong improvement in container leasing market conditions with a quarter-to-quarter increase in lease revenue, decrease in direct container expense, reduction in container impairments and increase in gains on container sales. New container prices were around $2,150 per CEU during the quarter while used containers prices continued to increase. Our utilization continues to improve as we lease out new-build and depot inventory,” stated Philip K. Brewer, President and Chief Executive Officer of Textainer Group Holdings Limited.
“Notwithstanding these very positive developments, the impact of writing off several one-time items related to our refinancing activity and non-cash GAAP tax expense, resulted in our reporting GAAP net loss in the second quarter. However, we project that we will return to profitability during the second half of this year.”
“Due to the need to recover Hanjin containers and financing limitations, our investment in new containers was extremely limited during the first quarter. During the second quarter we raised $920 million to pay down existing term debt and bank facilities, enabling us to free up liquidity and acquire new containers. We have invested approximately $275 million year-to-date under very attractive lease terms with initial yields above 12% and our low leverage gives us the flexibility to continue investing. These investments combined with on-going lease-outs of depot and ex-Hanjincontainers will continue to improve our earnings going forward.”
“A week ago, we were very pleased to assume the management of 182,000 TEU fleet of containers from Magellan Maritime Services GmbH. We were able to complete this integration within three weeks, again demonstrating Textainer’s expertise at container management,” concluded Mr. Brewer.
Key Financial Information (in thousands except for per share and TEU amounts):
|Q2 2017||Q1 2017||Q2 2016 (*)||Q2 2017||Q2 2016 (*)|
|Lease rental income||$||108,779||$||107,617||$||120,465||$||216,396||$||242,813|
|Income from operations||$||33,512||$||20,039||$||26,398||$||53,551||$||55,772|
Net loss attributable to Textainer Group Holdings Limited common shareholders
Net loss attributable to Textainer Group Holdings Limited common shareholders per diluted common share
|Adjusted net (loss) income (1)||$||(1,195||)||$||(9,067||)||$||2,537||$||(10,262||)||$||8,559|
|Adjusted net (loss) income per diluted common share (1)||$||(0.02||)||$||(0.16||)||$||0.04||$||(0.18||)||$||0.15|
|Adjusted EBITDA (1)||$||91,210||$||82,112||$||95,214||$||173,322||$||191,449|
|Average fleet utilization||96.3||%||95.0||%||94.7||%||95.7||%||94.6||%|
|Total fleet size at end of period (TEU)||2,992,040||3,054,198||3,195,378|
|Owned percentage of total fleet at end of period||81.3||%||81.3||%||81.0||%|
(*) Certain amounts for the period ended June 30, 2016 have been restated for immaterial corrections of identified errors pertaining to the classification of certain leases and to reverse gains on sale of containers, net that were deemed uncollectible.
“Adjusted net (loss) income” and “adjusted EBITDA” are Non-GAAP Measures that are reconciled to GAAP measures in footnote 1. “Adjusted net (loss) income” is defined as net (loss) income attributable to Textainer Group Holdings Limited common shareholders before charges to write-off of unamortized deferred debt issuance costs and bond discounts, unrealized losses (gains) on interest rate swaps, collars and caps, net and the related impact of reconciling items on income tax expense and net (loss) income attributable to the non-controlling interests (“NCI”). “Adjusted EBITDA” is defined as net loss attributable to Textainer Group Holdings Limited common shareholders before interest income and expense, the write-off of unamortized deferred debt issuance costs and bond discounts, realized and unrealized losses (gains) on interest rate swaps, collars and caps, net, income tax expense, net (loss) income attributable to the NCI, depreciation expense, container impairment, amortization expense and the related impact of reconciling items on net loss attributable to the NCI. Footnote 1 provides certain qualifications and limitations on the use of Non-GAAP Measures.
Lease rental income decreased $11.7 million from the prior year comparable period. The decrease was due to a decrease in average rental rates and lost revenue from the Hanjin bankruptcy, partially offset by higher utilization.
Gains on sale of containers, net was $5.9 million for the current quarter compared to $0.2 million for the prior year quarter; the $5.7 million increase was primarily due to an increase in average sales proceeds per unit, partially offset by a decrease in volume of sales. Container impairments decreased $18.8 million from the prior year quarter primarily due to a decrease in the volume of containers designated for disposal, an increase in used container prices and a $4.9 million reversal of previous recorded impairments on containers held for sale due to rising used container prices during the second quarter 2017, partially offset by a $3.7 million impairment for containers that were unlikely recoverable from lessees in default.
Textainer’s second quarter results were adversely impacted by an increase in depreciation expense of $7.9 million from the prior year comparable period primarily due to a decrease in residual values effective July 1, 2016, partially offset by an increase in useful lives also effective July 1, 2016 and a decrease in our owned fleet size excluding fully depreciated containers. Interest expense, including realized losses on interest rate swaps, collars and caps, net, increased $7.5 million from the prior year quarter due to a 108 basis point increase in our effective interest rate.
“Our average effective interest rate increased 108 basis points when compared to the year-ago quarter. Approximately 60 basis points of the increase was due to increased spreads following our financing amendments as several below market rate facilities were repriced to align with current market rates for container lessors. Additionally, we have incremental fees because of our financing activity and changes to LIBOR, offset by a hedging benefit. Several below-market rate facilities being repriced as a part of the amendment process to align with current market rates. Our effective rate remained relatively flat versus first quarter of this year and we are working to improve our funding costs going forward,” commented Hilliard C. Terry, III, Executive Vice President and Chief Financial Officer of Textainer Group Holdings Limited.
“During the quarter, we completed two asset-backed notes issuances totaling $920 million. Both were well received by fixed income investors and oversubscribed by as much as six times. As a result, we were able to tighten pricing versus other recent issuances by competitors. The offerings achieved several milestones in the container ABS markets: the largest container issuance in over a decade and the largest annual issuance for any issuer in the container ABS market. Our financings position us to take advantage of the attractive leasing returns we are seeing in our market,” concluded Mr. Terry.
In addition to the above-mentioned factors, Textainer’s second quarter results were also negatively impacted by an increase of $4.0 million in income tax expense from the prior year quarter primarily due to a higher than forecasted percentage of our business occurring in the United States relative to other regions.
“New container prices have not only remained stable but seem likely to increase in the coming months due to production constraints resulting from the challenges of using waterborne paint during the winter months and increases in component costs. For these reasons, we are optimistic. Used container prices have increased 85% since the low point in August 2016 and are now at levels significantly above the residual values we use for depreciation purposes,” stated Mr. Brewer.
“We are excited about our outlook; the lease-out market is strong and a number of sustainable trends appear to be in place for this strength to persist. Production capacity is limited, new container and depot inventories are very low, utilization is high for all container lessors, and lessors are purchasing more than half of all new production. The financial performance of shipping lines is improving but they remain somewhat capital constrained and are viewing leasing favorably. Our high utilization and attractive used container prices should ensure gains on sale continue in the coming quarters and we expect direct costs to further reduce as storage and handling expenses continue to benefit from high utilization.”
“Should current market conditions continue going forward, we project our revenue to increase significantly due to the repricing of maturing leases which are at rates well below the current market. We believe that these positive changes and trends, especially the future impact of lease repricing, may not be recognized by the market,” concluded Mr. Brewer.
Investors’ Conference Call and Webcast
Textainer will hold a conference call and a Webcast at 11:00 am EDT on Tuesday, August 8, 2017 to discuss Textainer’s second quarter 2017 results. An archive of the Webcast will be available one hour after the live call through August 8, 2018. For callers in the U.S. the dial-in number for the conference call is 1-888-895-5271; for callers outside the U.S. the dial-in number for the conference call is 1-847-619-6547. The participant passcode for both dial-in numbers is 45276645. To access the live Webcast or archive, please visit Textainer’s Investor Relations website at http://investor.textainer.com.
About Textainer Group Holdings Limited
Textainer has operated since 1979 and is one of the world’s largest lessors of intermodal containers with a total of 2.0 million containers representing 3.0 million TEU in our owned and managed fleet. We lease containers to approximately 300 customers, including all of the world’s leading international shipping lines, and other lessees. Our fleet consists of standard dry freight, dry freight specials, and refrigerated intermodal containers. We also lease tank containers through our relationship with Trifleet Leasing and are the primary supplier of containers to the U.S. Military. Textainer is one of the largest and most reliable suppliers of new and used containers. In addition to selling older containers from our lease fleet, we buy older containers from our shipping line customers for trading and resale. We sold an average of more than 120,000 containers per year for the last five years to more than 1,400 customers making us one of the largest sellers of used containers. Textainer operates via a network of 14 offices and approximately 500 depots worldwide.
Important Cautionary Information Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of U.S. securities laws. Forward-looking statements include statements that are not statements of historical facts and include, without limitation, statements regarding: (i) Textainer’s expectation that it will return to profitability during the second half of this year; (ii) Textainer’s expectation that its new container investments combined with on-going-lease-outs of depot and ex-Hanjin containers will continue to improve its earnings going forward; (iii) Textainer’s belief that new container prices have not only remained stable but seem likely to increase in the coming months due to production constraints resulting from the challenges of using waterborne paint during the winter months and increases in component costs; (iv) Textainer’s expectation that its high utilization and attractive used container prices should ensure gains on sale continue in the coming quarters and direct costs to further reduce as storage and handling expense continue to benefit from high utilization; (v) Textainer’s expectation that should current market conditions continue going forward, its revenue will increase due to the repricing of maturing leases which are at rates well below the current market; and (vi) Textainer’s belief that the positive changes and trends, especially the future impact of lease repricing, may not be recognized by the market. Readers are cautioned that these forward-looking statements involve risks and uncertainties, are only predictions and may differ materially from actual future events or results. These risks and uncertainties include, without limitation, the following items that could materially and negatively impact our business, results of operations, cash flows, financial condition and future prospects: any deceleration or reversal of the current domestic and global economic conditions; lease rates may decrease and lessees may default, which could decrease revenue and increase storage, repositioning, collection and recovery expenses; the demand for leased containers depends on many political and economic factors and is tied to international trade and if demand decreases due to increased barriers to trade or political or economic factors, or for other reasons, it reduces demand for intermodal container leasing; as we increase the number of containers in our owned fleet, we increase our capital at risk and may need to incur more debt, which could result in financial instability; Textainer faces extensive competition in the container leasing industry which tends to depress returns; the international nature of the container shipping industry exposes Textainer to numerous risks; gains and losses associated with the disposition of used equipment may fluctuate; our indebtedness reduces our financial flexibility and could impede our ability to operate; and other risks and uncertainties, including those set forth in Textainer’s filings with the Securities and Exchange Commission. For a discussion of some of these risks and uncertainties, see Item 3 “Key Information— Risk Factors” in Textainer’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 27, 2017.
Textainer’s views, estimates, plans and outlook as described within this document may change subsequent to the release of this press release. Textainer is under no obligation to modify or update any or all of the statements it has made herein despite any subsequent changes Textainer may make in its views, estimates, plans or outlook for the future.