Q3 2021 Textainer Group Holdings Ltd Earnings Call

It's 2020 filed with the Securities and Exchange Commission on March 18th 2021, and going forward any subsequent quarterly filings on form 6K for additional information concerning factors that could cause actual results of different materially for those in a forward looking statements.

During this call we will discuss not got financial measures such measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures will be provided either on this conference call where it can be found at today's earnings press release, following along with Orange lose today, we have also provided sides.

The company or comments on today's call. Both the earnings release in the earnings call presentation can be found out <unk>. The best relations website at <unk> Dot <unk> Dot com.

I would like to turn the call over to alleviate get scared take standards, President and Chief Executive Officer for his opening comments.

Thank you and good afternoon, everyone and thank you for joining us today, who would take theaters third quarter 2021, and it's cold.

I'll begin by reviewing the highlights of our third quarter results and then provide additional perspective on the industry.

Michael will then go over all financial results in greater detail.

After which we will open the call to your questions.

I'm proud to deliver yet another quarter of very positive results.

This reflects the consistent execution of a strategy to drive profitable organic growth.

They focus on optimized longterm capex as well as continued operational and financial efficiencies.

In addition, we continue to Prioritise efficient capital allocation tour active share repurchase program and I'm also very pleased to announce the reinstatement of our common share dividend program, which is supported by a strong and growing cash flow generation outlook.

For the third quarter rent.

Rental revenue increased 8% sequentially when excluding non-recurring income from the second quarter and 31% compared to the third quarter of 2020, driven by impressive fleet growth in a positive market environment adjusted EBITDA increased to $184 million 50.

5% growth from the same quarter last here and adjusted net income was $77 million or $1.52 per diluted chairs, which represents an annualized hour we of 22%.

As we reached the end of the traditional peak season or performance continues to be supported by elevated trade volumes and the historic level of Cape X, we deployed during the pandemic.

As a reminder, the rental rates and all these are locked in for the long term duration and typically for an additional six to 12 months given the restrictive schedule of permitted return locations.

New container prices remained consistent at about $3800 per see you drill.

Driven by a sustained demand capacity management and increases in material cost.

Duction levels have ramped up significantly this year and we expect container production to exceed 6 million Teu in 2021.

This is a record level, which must however be viewed in line with the low production level of the preceding years.

Total factory inventory level remains reasonable at one month equivalent of current production.

During the year, we have also further strengthened our financial position.

The optimization of our debt financing.

As of the end of the quarter or effective interest rate now stands at two 6% with 89% of our debt at fixed rate with an average remaining tenure in excess of six years.

Over the next several years, we will continue to benefit from the Derisking achieved through the longer lease tenure and optimized fixed rate debt, which has effectively locked in attractive long term economic gains.

As we look to the balance of the year and into 2022.

We expect the current favorable market micro environment to continue.

Cargo volumes are expected to remain strong through the full year of 2022 due to the continued high consumer spending the restocking of low level of inventory and a worldwide port congestion.

We expect new container prices to remain high as manufacturers maintain a disciplined approach to production capacity and Thats component costs have also increased.

This to continue to support high utilization rate as well as high resale prices further supported by the corresponding limited supply.

Overall, we expect our customers to continue to benefit from very favorable ongoing market condition and strong ocean freight rates.

While we expect the tailwind is driving the current market conditions to persist through 2022, we expect to see a return to a more normalized level of container capex following several quarters of historical container production.

Nonetheless, we anticipate continued growth of our balance sheet, given the projected high container prices.

We're focused on delivering a long term balanced approach of driving organic growth through disciplined accretive capex investments, while returning capital to common shareholders to our ongoing share repurchase and reinstate the dividend programs.

We have repurchased over one 6 million shares through the first nine months of the year include.

Including approximately 524000 shares during the third quarter.

This represents approximately 16% of shares which were outstanding when the program commenced in September 2019.

The board and the management team continue to see share repurchase as an efficient use of our liquidity.

Did you see initiatives and the positive momentum and our business supported by our oppressive underlying fundamentals and performance.

Two three adjusted net income increased to $77 million, another strong showing an increase of over 250% year over year.

Q3s number represented a 10% increase over Q2, if normalised four $6 million in nonrecurring revenue received in the prior quarter.

Two three adjusted earnings per share increased to $1.52 per diluted common share another attractive level and an increase of over 270% year over year resolving from strong performance and the positive impact from our share repurchase program.

We're also very pleased that this results in an annualized Q3 adjusted are we 22%.

Q3, adjusted EBITDA increased to $184 million a year over year increase of 55% ills.

Illustrating the material cash generation from our historic level Capex during the last two years.

If texting or also included all cash receipts from its finance leases within Q3 adjusted EBITDA. The Q3 number would be $235 million arguably another illustrative and meaningful cash generation metric.

<unk> lease rental income increased to $196 million a year over year increase of 31%.

Normalized and Q2, four 6 million nonrecurring revenue huge release rental income increased by $40 million or 8% from Q2.

Are positive topline results were driven by organic <unk> supported by very attractive long tenure leases and favorable fixed rate yields and increases in average rental rates.

Expect to deliver another improve it to lease rental income in queue for as we continue to recognize the benefits from a tracking continued investment.

And lease renewals and extensions.

We're very pleased with our utilization rate, which has remained at an average of 99.8% sure the quarter and two days.

Keith regain on sale abode fleet containers continue to show well at $20 million, a slight increase compared to Q2, driven mostly by consistent and attractive resale container prices.

Let's sing since the inception of our program in September 2019.

And will continue to repurchase shares opportunistically as we move forward consistent with our capital allocation plan we.

We are indeed, very pleased to announce the reinstatement of our common dividend program in order to provide a consistent and reliable cash returned to our shareholders.

Our board has approved and declared a cash dividend up 25 cents per common share payable on December 15th.

2021 to shareholders of record as of December 3rd 2021.

Please note consistent with our prior calm and dividends are common dividend distributions may be currently treated as a return of capital by U S taxpayers.

But our shareholders are advised to consult with a tax advisors interview the dividends section the tech standard Dot Com Investor Relations Web page.

Our board has also approved a declared a coordinate prefer cash dividend for both our series a <unk> perpetual preferred shares payable on December 15th 2021, two holders of record as of December 3rd 2021.

Looking now at our balance sheet and liquidity, we continue to maintain a healthy balance sheet and adequate liquidity through both are well structured bank facilities and cash reserves.

We ended Q3 with a cash position inclusive of shoot the cache of $261 million.

In closing, we believe <unk> remains well positioned with a solid balance sheet.

Healthy liquidity and optimized count the structure and demonstrated expense control and efficiency.

We remain confident in our ability to further improve our profitability metrics. In addition, we are committed to sustain long term shareholder value creation through.

He was strong financial performance and our share repurchase and dividend programs.

This concludes our prepared remarks. Thank you all for your time today operator, please open the line for questions.

We will now begin the quest channels assumption.

Joining the question can you give me a press thoughts and one when your telephone keypad.

Human error code acknowledging your request.

If you're using a speaker phone.

Can you pick up your handset before pressing any cheese.

To record your question. Please Cresta then too.

But then the number of containers, we have ordered so that's two time it with the normal market cyclicality, but we still expect that you know we're gonna get the full impact of those containers on hiring the third quarter in in the fourth quarter. So they should still be some improvement in the in the.

Find most definitely.

I'm going forward I think that.

You know, we continue to see many opportunities to deploy capital, but we probably won't see a repeat of this market I think we've seen that an absolutely incredible market and into some large extent, we continue to see a an absolutely incredible market but.

Environment than the fact that we have to continue to deploy Catholics and we continue to to deploy a Cape X, but but it. It is I think also a reflection of our confidence in in those future cash flow and and you rightly point out that the slight 10 is is meant that that illustrating you know <unk>.

Solid D outlook is for us for the coming at least five years, if the if not well beyond that actually now the capital allocation. I think is is is a difficult question not so much in the sense of what is the best to do but it's difficult to read the market that we spent now.

It's it's obvious that if we continue to see opportunities to deploy capital on term under these extremely long term leave it and he's attractive <unk> that is going to continue to be all or priority. If that was too slow down then we definitely turned to.

You know I, I think or or business is definitely predicated on on leverage would we want to necessarily increase her leverage I think within within a certain range. We're happy to to have a higher leverage because it helps us improve or over.

We'll returns, but you know I think if you look at or ability to to generate cash and I think we have a little summary on one of our site I think it's a slight 14 of or I R deck, I would say that there's already.

There are potential to generate a very high amount of cash that would imply that we don't really needs to increase the leverage to return more capital to shareholder. If we if we decided that that was the course of action we wanted to follow.

Yeah, I might get Michael here, if I did I add onto liberties calm itself just to be very clear, we certainly see that by you and executing buybacks. It's a highly attractive method of returning cancel to our shareholders of course, there is indeed, a long term benefit there is your car.

We have a lot of room in our leverage the illusion due.

The fact that you're a little bit below three times, a deathbed witty. So we're in a very strong balance sheet position generate love organic cashflows.

Behavior of the various a player in the industry I think that the shipping lines are off.

Operating a very tight environment there their prices are extremely high and those ocean freight rates are unlikely to come down as long as the congestion remains in place and it's difficult to ship goods theres still plenty of cargo waiting to be to be shipped are in Asia.

So shipping lines really are in a in an environment where.

There's absolutely no need to change.

Changed their behavior likewise.

Computer manufacturers are operating in an environment, where it is only a.

Three major manufacturers and they are charging expensive prices toward their containers.

And I think they are fully understood that.

The demand is not going to change very much.

Their pricing varies so they have a vested interest in maintaining the high pricing level that we have now witnessed four four at least since the beginning of this year. So we really can't see why a manufacturing prices would drop component cost, it's actually gone up.

Trust somewhat reduce their margins, but let's be honest their margins are still very healthy at the at the moment, but they they have no no incentives to change behavior.

The first signs are that you know for as far as we can tell when they can't.

Has been still remained pretty strong.

Presuming that prices are high just because because.

New new new container pricing is higher and that's taking the resale value up but Ah are you seeing brought her demand for use containers or is it just the same customer base I know, it's a pretty diverse.

[noise], yeah, it's it's a different customer base, but the the high price on the secondary market are are are driven by two elements that you are correct to point out the price of new containers, but also simply supply has been extremely restricted because in the current environment. The shipping nights have been holding.

<unk> to their existing containers or the least containers and they haven't turned in any any container. So much so that the the hardest part when it comes to you know building our budget for next year for sounds for example is trying to estimate how many containers we will have available.

<unk> for sale, because our customers are holding on to those containers and you know, they're they're fully utilizing them and Moreover, they're faced with a choice of either we delivering an old container and potentially replacing with a new container that's gonna be a lot more expensive, which really means that that you know.

They they have a lot of incentive to hold onto the older containers and that really means that you know, it's very difficult for us to to Fry and an estimate how many containers, we are going to have available and and and obviously that plays around for auto less sores and and whatever quantity.

The remaining very very attractive we haven't seen the <unk> coming below below 10 years, you know I think that if the market slows down we're probably going to see you know the neatest shortening a little bit too too too atheists. Mr. Certainly we haven't seen that so far.

And you know for the fourth quarter and then the dare to venture evening too next here, we continue to see extremely long maturities in line with what we have seen since the beginning of the year.

If the market, but going forward you know because of all the reasons I mentioned earlier on we continue to see elevated price for our resale container. The big question is more when when they will start coming back and we can't rule out that.

The market remains so strong that the shipping line delay the re delivery of those containers, even even further.

Yeah. Thanks for the interesting to follow that and see how that pans out hopefully you're correct on the your guests there.

The pivot to capital location, Michael Brown had some fantastic questions as well so I don't want to beat the dead horse too much but I think it's what most shareholders really care about slide 14 is excellent and you have the chart. There that shows what 921 million I believe it is if you take Q3 annualized and go forward on that.

Let's talk first of all about Capex, because I'm curious about how you are seeing in Q4, developing how youre seeing 2022, developing I believe you had $622 million of Q3, Capex you had $1 7 billion year to date.

Important factor for us here was to.

We can resume our dividend program and and in deciding so it's obviously a board decision, but I think the fundamental element here is that the board and then end the management wanted to make sure that we had the ability to support that dividend you know to whatever cycle of water.

Whatever may hit the business going forward. That's the first element. The second element is that we continue to think that you know our 2022 could very well see I'm a very strong year.

Again, I, you know I I am saying here that are in earlier on that we think it would be logical that the total capex level come down compared to 2021 because they were exceptionally high but this market has been so unpredictable that we can't rule out that.

We're going to continue to see a very strong year next year and I think that it's only prudent for us to.

Keep a little bit of capacity to continue to be able to.

Address that that potential capex, if that was ever to materialize and probably the final element here is really that are you know given you know the sustainability of our cash flows and the outlook, we see for the business.

Thank you everyone for attending this call and yeah. We certainly look forward to host you are next quarter with further insight into this exciting market. Thank you.

This concludes today's conference call you may disconnect your lines. Thank you.

You for participating and have a pleasant day.

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