Q4 2022 Textainer Group Holdings Ltd Earnings Call
Speaker 2: Thank you and welcome to TechStainers 4th Quarter 2022 Ernie's Call.
Speaker 2: At this time, all participants are on a listen only mode. Later, we will conduct a question and answer session, and instructions will be provided at that time. As a reminder, today's conference call is being recorded. I will now turn the call over to camera, the Korean Director of Investor Relations with TechStainer. Thank you.
Speaker 3: Thank you. Certain statements made during this conference call may contain four looking statements in accordance with U.S. security blogs. These statements involve risks and uncertainties, our only predictions, and made to form materially for factual future events or results.
Speaker 3: The company's views, estimates, plans, and outlook as described within this call may change after this discussion. The company is under no obligation to modify or update any or all statements that are made.
Speaker 3: We see the company's annual report on form 20F for the year ended December 31st, 2021 filed with the Securities and Exchange Commission on March 17, 2022, and going forward and the subsequent quarterly filing on form 6K.
Speaker 3: for additional information concerning factors that could cause actual results to defer materially from those in the board looking statements. During this call we will discuss non- GAAP financial measures.
Speaker 3: As such, measures are not prepared and, according to 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 or can be found in today's earnings press release.
Speaker 3: Finally, along with the earnings release today, we have also provided slides to accompany our comments on today's call. Both the earnings release and the earnings call presentation can be found on TechTainers Investor Relations website at investor.techtainer.com.
Speaker 3: I would now like to turn the call over to Olivier Giscares, Tech-Saners President and Chief Executive Officer for his opening comments.
Speaker 4: Thank you, camera.
Speaker 4: Good morning everyone and thank you for joining us today.
Speaker 4: I will begin by reviewing the highlight of our fourth quarter and full year results, followed by additional perspective on the industry.
Speaker 4: Michael will then go over our financial results in greater detail, after which we will open the call for your question.
Speaker 4: Our financial results for the full year 2022 reflect the tremendous growth achieved over the last two years.
Speaker 4: For the year, these rental income increased by 8% to $810 million, driven by organic free growth from KPEX deployed in the first half of the year, and the full-year impact from KPEX investment in 2021.
Speaker 4: We additionally continue to benefit from an exceptional retail market, achieving gain on disposals of $77 million during the year, with adjusted EBITDA that increased by 7% to $746 million and adjusted net income reaching $219 million.
Speaker 4: importantly, improve the quality of our top line while greatly strengthening our balance sheet.
Speaker 4: In 2022, we added $786 billion of new containers assigned to very long-term limited???.
Speaker 4: As a result, the average remaining tenor across our entire lease portfolio reached 6.3 years at the end of the year, with 98% of those livid on fixed rate terms and finance needs contracts.
Speaker 4: As exceptional gain on disposal normalize to more sustainable levels, a long-term lead contracts will support high utilization and long-term profitability, keeping us in an ideal position to benefit from the next federal market opportunity.
Speaker 4: In the meantime, the strong-cashable generation of the fleet continue to support our ability to return capital to shareholders.
Speaker 4: Through the full year, we repurchase 5.6 million common shares representing just under 12% of total shares outstanding as at the beginning of the year, and we continue to view our share repurchase program as a key aspect of our capital allocation policy.
Speaker 4: In addition, I am very pleased to announce that the board has authorized a 20% increase to a quarterly cash dividends to common shareholders, increasing it from 25 cents per share to 30 cents per share.
Speaker 4: We continue to firmly believe in distributing a durable and consistent dividend for the foreseeable future, and this increase certainly reflects confidence in our business future.
Speaker 4: While the fourth quarter resulted in the much anticipated normalization of the retail market,
Speaker 4: Several developments point to a return to greater predictability and we feel optimistic that the container-leaving market is now showing multiple positive signs of stabilization as we are entering into 2023.
Speaker 4: Cargo volumes and ocean trade rates on major trade are stabilizing and remain equal or higher than before COVID as illustrated by the recent financial results announcement of major carriers.
Speaker 4: Board congestion, which was a tail-tail indication of overheating shipping markets throughout the past two years, has now halved to about 7% of the world container ship fleet. Yet, our container fleet utilization has remained very stable at an elevated level close to 99%.
Speaker 4: In fact, the net balance of container redeveloped has recently somewhat reduced as localized demand pre-lunar-new-year resulted in a mini cargo rush and depot take-up.
Speaker 4: Again, hand prices for older contators also appear to be stabilized and are further supported by the recent increase in new build-asking prices.
Speaker 4: Indeed, major manufacturers face with low-order volumes, increasing material cost and a stronger reminb, have placed several factories in extended shutdowns and have raised their asking price to $2,200 per sinew. More generally, and while micro-economic concern remains,
Speaker 4: The growth outlook appears to be improving with greater than expected resilience in Europe and not America, easing of inflationy pressure and the anticipated recovery in China, now that anti-virus restrictions have been lifted.
Speaker 4: We expect CapEx opportunity will remain limited to the first half of the year, giving time for the market to absorb the current factory inventory that has remained stable at about 1.1 million PNUs.
Speaker 4: As previously emphasized, this represents an opportunity to shift our focus to cash flow allocations across capital return and deleverging.
Speaker 4: We continue to keep our inventory at low level and plan to only deploy CapEx when expected returns can be achieved, ultimately viewing CapEx deployment as financial opportunity, not as an operational necessity.
Speaker 4: Container industry player continue to remain diligent as it pertains to capacity in the market. New orders placed at Container Factory have virtually stopped.
Speaker 4: Credit risk continues to be minimal as our customers continue to enjoy profitable results and strong balance sheets with low to low debt.
Speaker 4: Rising interest rates have continued to push up interest expense. However, market rate increases may be nearing their peak as inflation stagnates.
Speaker 4: In summary, 2022 was a tremendous record year for tech-standard, achieving our highest ever level of revenue and income.
Speaker 4: Looking ahead to 2023, we expect civilizing performance thanks to a core business model, with contractual revenue and profitability protected by our long-term lease contracts and fixed rate financing policy.
Speaker 4: While we wait for the market demand to turn, possibly with a return of the summer seasonality, we will continue to prioritize our capital allocation towards both strengthening our balance sheet and returning capital to our shareholders through ongoing share repurchase and dividend programs.
Speaker 4: I will now turn the call over to Michael. We'll give you a little more color about our financial results for the fourth quarter and the full year.
Speaker 5: Thank you, Ludwig. Hello, everyone. I will now focus on our Q4 and full-year financial results.
Speaker 5: A just-known income for the year was $290 million, a company record, and an increase of $6 million compared to 2021.
Speaker 5: Q4 Justinate income was $62 million.
Speaker 5: decreasing by 15 million from last quarter.
Speaker 5: This decrease was driven primarily from an expected lower gain on sale.
Speaker 5: Our Q4A analyzed suggested our review was nearly 15 percent and 18 percent for the full year 2022.
Speaker 5: Just in the EPS score the year was $6.13 per diluted common share, an increase of 9% from $5.62 in 2021.
Speaker 5: Q4 adjusted EPS was $1.38 per diluted common share. It decreased from last quarters $1.64 per diluted common share.
Speaker 5: Q4 lease rental income was $203 million as compared to $205 million in Q3.
Speaker 5: For the year, we're running on total $810 million.
Speaker 5: and they percent increase from 21.
Speaker 5: During by Capix deployed through the first half of 2022.
Speaker 5: and pull your impact of CapEx investments from 2021.
Speaker 5: Q4 gain on sale was $15 million.
Speaker 5: A roughly 35% decrease from the exceptional game levels experienced during the previous two quarters.
Speaker 5: For the year, we earned a record $77 million in games, a 15% increase from 2021.
Speaker 5: This is driven by an increase in sales volumes sourced from slightly higher the deliveries of older, mostly sales age containers from expired beast contracts.
Speaker 5: As we sell container prices have reduced from peak levels, can on sale is expected to stabilize closer to prior historical averages.
Speaker 5: Having served this as mentioned by Olivier, we sell prices had begun to stabilize in conjunction with increased new box asking prices and higher material costs and the room in B.
Speaker 5: Q4 direct container spends of $11 million dollars increased from the previous quarter by $2 million due to higher maintenance handling and storage fees.
Speaker 5: Point forward, we expect direct container expense to increase marginally as we process mostly older containers before selling them on the secondary market.
Speaker 5: Q4 depreciation expense was $74 million and is expected to remain mostly flat in 2023 with tempered remaining cat-backs expectations.
Speaker 1: put that forward.
Speaker 5: Q4G&A expense of $12 million for being flat from Q3.
Speaker 5: Q&A expense is expected to continue to remain relatively flat through 2023.
Speaker 5: 2.4-intercepts of $43 million increased by 2 million from Q3 due primarily to the impact of higher market interest rates on the unhidged component of our debt.
Speaker 5: Our Q4 average effective interest rate stands at 3.02% and increased from 2.83% in C3.
Speaker 5: Turning now to our Common Shiro Purpose Program, we were purchased approximately 1.5 million shares during Q4.
Speaker 5: For the full year, we were purchased 5.6 million shares or nearly 12% of thankshures from the beginning of the year.
Speaker 5: Since commencing our share of purchase program in September 2019, we have re-purchased 15.7 million shares or 27% of our outstanding shares, demonstrating our commitment to effectively managing shareholder returns.
Speaker 5: The remaining authority under our existing share purchase program totaled over $122 million as of the end of the year.
Speaker 5: Our share of purchase program can change to be a key component and significant focus of our capital allocation policy to further drive shareholder value to our investors.
Speaker 5: And we expect to remain active as it relates to future purchase activity.
Speaker 5: As mentioned by Libya, we are excited to announce that our board has accrued an increase of 20%.
Speaker 5: for a common share quarterly cash dividend, increasing it to 30 cents per common share, and a large cable on March 13th to holders of records on March 13th.
Speaker 5: The combined impact of text-standard share of purchases in common dividend during the year represented 78% of 2022 adjust their income.
Speaker 5: highlighting the board's competence in the business and value placed on shareholder returns.
Speaker 5: Additionally, book value per share increased $8.54 per share to $38.87 or by more than 25% over the past year, reflecting our strong net income and substantial share purchases.
Speaker 5: Textures book value for sharing increased by more than 50% over the last few years.
Speaker 5: Looking now at the strong acid quality of our bell sheet.
Speaker 5: We have very well benefited from the addition of significant levels of attracted long-term fixed rate catbacks and life cycle lease extensions over the last two and a half years. Our high quality lease portfolio provides long-term fixed casulas.
Speaker 5: Now, averaging 6.3 years of remaining contractual lease tenor, and covering nearly 80% of the remaining depreciable life of our young 4.9-year-old fleet on an MBV basis.
Speaker 5: Our revenue generating assets continue to be well supported by an efficient fixed rate or hedge-to-fix long-term financing structure to mitigate market interest rate risk.
Speaker 5: This financing platform was well optimized when very attractive long-term fixed interest rates were available and therefore locked in.
Speaker 5: It continues to be carefully managed to protect these profit margins.
Speaker 5: Opportunistic de-leveraging of the higher priced, unhidged component of our debt stack has assisted us in controlling interest costs and has provided us with an attractive 2.6 times net debt equity ratio.
Speaker 5: Current debt levels are easy to manage, and we are ready to finance additional investment when appropriate capital needs are available.
Speaker 5: In closing, we had an excellent year that produced very strong results.
Speaker 5: The fourth quarter was likely at the much anticipated normalization with its expected impact on resale prices in particular.
Speaker 5: But we are optimistic for 2023 as we enter the year with recession fears using the way.
Speaker 5: Our balance sheet and the liquidity generation continues to be strong, and we intend to remain disclin when it comes to evaluating capital expenditure opportunities.
Speaker 5: We will also continue to execute an optimized capital allocation in the best long-term interest of our shareholders.
Speaker 5: This concludes our prepared remarks. Thank you all for your time today. Operator, please open the line for questions.
Speaker 2: Thank you. Ladies and gentlemen, at this time we will begin conducting a question and answer session.
Speaker 2: If you'd like to ask a question, you may press star one on your telephone keypad. A confirmation tunnel indicate your line is in the question queue.
Speaker 2: You may press star 2 if you would like to remove your question from the queue.
Speaker 2: for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Speaker 2: Our first question comes from the line of Mike Brown with KVW. Please proceed with your question.
Speaker 6: Great. Hi. Good morning, everyone.
Speaker 7: morning, Mike. I'd like to
Speaker 8: Olivia, I wanted to start off with the market here. You get a lot of very interesting color about what you're seeing and how to potentially think about the year. So clearly containerized trade has cooled and normalized and going back ruined.
Speaker 8: Going back to coming out of COVID, we went from a shortage of containers to a essentially an equilibrium and now it seems to be that the market is going to overstock given the cooler market. So as the market picks up, which timing is still uncertain, how will your customers balance their existing
Speaker 8: And then what kind of gives you confidence that we'll see a real recognition of growth? Like what are the puts and takes that we need to consider? It just seems like since there's still modest access in the system, won't that need to really work itself out before demand will come back, such that you can almost see a bit of a delay in the recovery.
Speaker 4: Yeah, that's a really good question, Mike. I think to answer this correctly, I really have to go back to the pre COVID situation, where we really had a situation with the new terrorist instrumented or shipping lines include in the VW Center opposite case, which is the most public TPIC Republic. The VW Center is the most public TPIC Republic.
Speaker 4: ago that needed to move and there was congestion. And you know, last year or sorry, 2021 we had a huge production which was probably double the normal average production that was required by the market. As you mentioned, 2022 we saw...
Speaker 4: as big as what people think. First of all, there has been some growth in the overall markets. And what we really observe at the moment is, first of all, as you've noticed, our utilization rate is holding very, very well, we're still very close to 99% which we regard as that.
Speaker 4: close to maximum utilization rate. What we are seeing is we are seeing shipping lines offloading primarily. They're very old containers. Those containers they have on, because they needed them for the search and the cycle. But we are not seeing shipping line best for it to...
Speaker 4: in demand. And the reality is that depots are reasonably full around the world, that's the fact. But for shipping like to keep a little bit of an excess capacity is not a huge cost in a short to medium term. So we certainly...
Speaker 4: see a situation where we have no new containers being added to the fleet. I think that's a very fundamental aspect of our industry that's supplying demand tends to adjust very quickly because the lead times to produce new containers are so short. So we have no containers being added to the fleet, which I think is very
Speaker 4: from the gain on sales and the pricing that we still enjoy on the second remarket. So we're very much are seeing kind of what I would call a soft landing and probably a situation that is going to remain fairly flat or stable for the first and second quarter of a year.
Speaker 4: And then we kind of see a little bit of a potential upstate in demand for containers in the second half of the year when the seasonal starts demand starts to come in. And, you know, we really think that this year we see a return of the seasonal, seasonal, or business.
Speaker 4: We are seeing definitely that trade the volumes or shipping volumes on the Transpacific are affected and they're clearly down, but they're holding better on European trade. And the situation in China with the end of the COVID restrictions is also giving a boost to...
Speaker 4: the local economy in Asia. So only we see very much a year with low production of new containers for the normalization year and continue very high utilization on our existing fleet.
Speaker 8: Thanks for all of that color Olivia. If we could just narrow in on the utilization where you talked a lot about that and have flagged how it has really almost stayed at almost the full utilization rate at 99%.
Speaker 8: But clearly it is a challenging environment here. So what are you guys thinking about in terms of where that goes from here? Because it does sound like it will still stay quite high. But I'm just trying to think through if turn-ins do rise a bit. You know, and if you-
Speaker 8: been able to really sell a lot of those containers, should it stay, semi-close to where it is? Like, I actually think about the trajectory for 2023.
Speaker 4: Well, I think we're going to see a continuation of all the containers coming back, certainly in the first half of the year, which will translate to us probably in a small attrition to our revenue because the revenue will lose if not compensated by new capex and new addition to...
Speaker 4: at that we experienced last year, but we certainly still selling continuous much above their NDV and realising again in ourselves. So, you know, we, so, you know, this is an interesting thing for us. We saw slightly higher volumes.
Speaker 4: of redeleveries in October , November . And then December January , we've actually seen an easing off of redeleveries. And we very much feel that, you know, the redeleveries are going to remain fairly stable, which is that.
Speaker 4: a perfectly management level as far as we are concerned. So, you know, small nutrition until potentially a demand picks up, which we expect all we hope would take place with the summer. And, you know, moving on from there, possibly opportunities to...
Speaker 4: lead out a few debtor containers that remain extremely competitive price-wise versus new containers given that the new container price has gone up a little bit even though there has been very very few transactions on the market.
Speaker 6: Thank you, Olivia. I will leave it there.
Speaker 7: Thank you, Mike. Thanks, Mike.
Speaker 2: The next question comes on the line of Lee and Burke with B. Riley. Please proceed with your question. Thank you. Good morning, Olivia. Good morning, Michael. Good morning, man.
Speaker 2: Looks like we lost Liam.
Speaker 2: As a reminder, ladies and gentlemen, it is star one to ask a question.
Speaker 2: We have a follow-up from the line of Mike Browns. Please proceed with your question.
Speaker 8: Okay, great. I'll have a question on the balance sheet.
Speaker 8: Maybe the other analyst will be back to ask their question. Yeah, so on the capital allocation front, we've got to have a very active year for share by-back in 2022, and you talked about that.
Speaker 8: CapEx opportunities will kind of remain soft here in the first half. Is there any reason that the pace of buybacks that we saw in 22 will continue to 1Q and then likely 2Q if that CapEx opportunity remains subdued? And I guess the point of my question is, is it one just the size, how you're thinking about buybacks and then two, is there anything else?
Speaker 8: in terms of balance sheet opportunities that you are thinking about or considering here just to make sure we are thinking about capital allocation correctly.
And I can put a good question here. So buybacks, as we've mentioned many times, is a core emphasis of our capital allocation policy. So you probably expect the share buybacks to be a continued very healthy level for us actually. On top of that, a dividend as well.
and we heard, when they mentioned the increase to the dividend, the test even as well. We like that. We want to keep it a sustainable and a lot of them give them as we go forward. On top of that, what we may do is manage a leverage as well. Might have noticed that we delivered it during two-war weeks.
So that's just cash flow. While we like the long term fix rate debt that is very, very well priced a lot. That was locked in when we had the opportunity to do so when those long term fix rates were attracted. We do have that unhidged portion of the debt set that we try to manage where we do have a bill that will cash sometimes while I'll keep some of that to you. You're entering that component.
that will manage and maintain a higher cost portions for a death stack to the low-slobbels that can keep to minimize that interest expense exposure there. But consistent approach, same approach that we've always been taking, that we've communicated to you guys.
Okay, just maybe one follow up on that. Is there any, if you see any interesting opportunities on the M&A front, how have some of your, you know, maybe smaller size private competitors been, been fairing in this market? And is that potentially?
present you with some opportunities to actually deploy capital into inorganic growth.
No, no really clear opportunity at this point, Mike, you know, we're operating a very consolidated industry with really five major players, essentially occupy most of the market space.
So at this point in time, we probably remain focused on capital allocation and return to shareholders and awaiting the market to turn so that we can grow organically, which has been extremely successful for us over the last few years.
that certainly will continue to be a focus. I mean, not to say that we won't look at any opportunities, shall there be one that arises, but we don't see any immediate opportunity arriving.
Okay, thanks for the thoughts there.
Our next question comes on the line of Liam Burke with B. Riley. Please pursue with your question. All right, thank you. Morning, Olivier. Morning, Michael.
Morning again. Morning again. Morning again. Your ROE fell off from 18% to 15%. But I looked across all your metrics though. I mean, utilization was strong. What caused that drop off?
I think the main exploration is really down to the gain on sales that we're at an exceptional level. If you look at the last two quarters, we had gain on sales that we never would have dream we could achieve a few years back.
And that's kind of like a normalized right now. So that's really the big impact. But I think that the ROE today reflects very much more the solidity of all core business.
Fair enough. Okay. And if I'm looking at your clients, both the liners and the container operators, balance sheets are in good shape, even though we're looking at, you know, short-term rate weakness. Any discussion on any kind of change in existing contracts or is everybody just...
have some contract matureing which we are extending on a regular basis. You know, there are costs for shipping lines to re-deliver containers obviously and there are costs for a leasing companies to have those containers back so I would say that in an environment like today where you can hear prices
And I must say we continue to be fairly successful in that respect in terms of extending those leaders.
Great. Thank you, Olivier.
Thank you, Liam. Thank you.
Our next question comes from the line of climate moments with value investors edge. Please proceed with your question.
Good morning, team. Thank you for taking my questions.
You will already provided some commentary.
You've already provided some commentary on the ordering front and the few opportunities currently available, but I was wondering, as the significant container ship order book is delivered, do you expect significant caps of opportunities to arise?
or should we expect a gradual normalization?
Yeah, this is a very difficult question. The way we look at it is that with more shifts being delivered, we essentially should see additional demand for containers, because obviously in those shifts, we'll enter it to serve it. The likelihood is that...
Ship-limites will use those ships to optimize their trade routes. They will probably fail those ships slower to save on fuel and reduce their CO2 emissions. And that will imply that they will need more containers to operate those ships efficiently.
I think the other interesting factor here is probably the announcement that the MFE and Rosalind would terminate their alliance. And obviously this will have some indirect consequence because they will have...
necessarily to big topics, opportunity. I think we'll have to wait and see. What is sure that it will provide support for utilization on the fleet that is out there, especially going to phase 4 onadoCom glywi?
It may provide additional impetus for adding new containers to the fleet, but I think that this will be gradual over the coming few years.
That's very helpful. Thank you. And following up on Liam's last question, could you provide some additional insight on the impact you expect from renewing glises that have already expired or are set to use throughout 2023? Are those being renewed at generally higher rates?
health
So just a confirmed comment you're asking about the reviews, the impact on reviews of reviews for the July 5th magnificent judge Al-Qaeda sorta
Yeah exactly.
Okay, so yeah, I think your question is really about whether we're able to review leases at the favorable rates. And I would say that obviously the situation not as favorable as it was last year, last year, we were, the last two years shall I say we were in that. Okay.
in a seller's market where we were able to increase the rate that we were extending leaders. The situation has somewhat moderated and you know we're probably in an environment where we're renewing maturing leaders at the same rate or slightly below the prevailing rate which is that kind of a really...
is not dramatic. And it, I would say, just a return to normalcy and what we have experienced in the past.
Big sense, that's all from me. Thank you for taking my questions and congratulations for the both of you pulled out.
Thank you very much. Thanks for met.
As a reminder, ladies and gentlemen, it is star one to ask a question.
There are no further questions.
30s and gentlemen, this does include today's dialogue conference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.