Textainer Group Holdings Limited, one of the world’s largest lessors of intermodal containers, reported second-quarter 2018 results.
Financial and Business Summaries
- Total revenues of $140.7 million for the quarter, a $21.5 million (or 18.0%) increase from the second quarter of 2017;
- Lease rental income of $121.6 million for the quarter, a $12.8 million (or 11.8%) increase from the second quarter of 2017 and sixth consecutive quarter of growth;
- Adjusted EBITDA(1) of $109.1 million for the quarter, an improvement of $17.9 million (or 19.7%), from the second quarter of 2017;
- Adjusted net income(1) of $17.7 million for the quarter, or $0.31 per diluted common share, an increase of $18.9 million from the second quarter of 2017;
- Utilization averaged 97.9% for the quarter and is currently at 97.9%, an improvement of 160 basis points from the average in the second quarter of 2017;
- Issued $259 million, seven-year fixed rate asset backed notes, increasing our ratio of fixed rate debt to 76% of total debt outstanding; and
- New container investments totaling $700 million ordered and/or received year-to-date.
“The second quarter produced continued growth and financial performance improvement as expected. Total revenues increased 18% over the comparable quarter in 2017 driven by the positive momentum from favorable market conditions and our strong capex,” stated Philip K. Brewer, President and Chief Executive Officer of Textainer Group Holdings Limited.
“We saw a significant surge in lease-outs, starting late June and continuing throughout July, associated with the traditional peak season increase in demand. The steady investments in new containers during the first and second quarters positioned us well to benefit from this surge. Over the past two months, our customers picked up more than 110 thousand TEU, yielding a lease-out to turn-in ratio of 2.5 to 1. The associated revenue will be fully reflected in our third quarter results.
“We have ordered and/or received delivery of 360 thousand TEU totaling $700 million in 2018. New container prices remain stable at approximately $2,200/CEU. Depot inventory remains at historically low levels and we continue to place new orders to replenish lease-outs of our factory inventory.”
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Key Financial Information (in thousands except for per share and TEU amounts): |
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| QTD | YTD | |||||||||||||||
| Q2 2018 | Q2 2017 | Q2 2018 | Q2 2017 | |||||||||||||
| Lease rental income | $ | 121,583 | $ | 108,779 | $ | 241,805 | $ | 216,396 | ||||||||
| Total revenues | $ | 140,702 | $ | 119,247 | $ | 273,940 | $ | 235,934 | ||||||||
| Income from operations | $ | 52,280 | $ | 33,512 | $ | 100,936 | $ | 53,551 | ||||||||
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Net income (loss) attributable to Textainer Group Holdings |
$ | 17,506 | $ | (9,353 | ) | $ | 36,224 | $ | (16,327 | ) | ||||||
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Net income (loss) attributable to Textainer Group Holdings |
$ | 0.30 | $ | (0.16 | ) | $ | 0.63 | $ | (0.29 | ) | ||||||
| Adjusted net income (loss) (1) | $ | 17,731 | $ | (1,195 | ) | $ | 34,739 | $ | (10,262 | ) | ||||||
| Adjusted net income (loss) per diluted common share (1) | $ | 0.31 | $ | (0.02 | ) | $ | 0.60 | $ | (0.18 | ) | ||||||
| Adjusted EBITDA (1) | $ | 109,140 | $ | 91,210 | $ | 214,393 | $ | 173,322 | ||||||||
| Average fleet utilization | 97.9 | % | 96.3 | % | 97.9 | % | 95.7 | % | ||||||||
| Total fleet size at end of period (TEU) | 3,354,085 | 2,992,040 | ||||||||||||||
| Owned percentage of total fleet at end of period | 80.0 | % | 81.3 | % | ||||||||||||
(1) “Adjusted net income (loss)” and “adjusted EBITDA” are Non-GAAP Measures that are reconciled to GAAP measures in section “Reconciliation of GAAP financial measures to non-GAAP financial measures” below. “Adjusted net income (loss)” is defined as net income (loss) attributable to Textainer Group Holdings Limitedcommon 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 income (loss) attributable to the non-controlling interests (“NCI”). “Adjusted EBITDA” is defined as net income (loss) attributable to Textainer Group Holdings Limited common shareholders before interest income and expense, write-off of unamortized deferred debt issuance costs and bond discounts, realized (gains) losses on interest rate swaps, collars and caps, net, unrealized (losses) gains on interest rate swaps, collars and caps, net, income tax expense, net income (loss) attributable to the NCI, depreciation expense, container impairment, amortization expense and the related impact of reconciling items on net income (loss) attributable to the NCI. Section “Reconciliation of GAAP financial measures to non-GAAP financial measures” provides certain qualifications and limitations on the use of Non-GAAP Measures.
Second-Quarter Results
Lease rental income increased $12.8 million, compared to the second quarter of 2017, primarily due to higher utilization and increases in the average rental rates and the average fleet size.
Gain on sale of containers, net increased $5.5 million, compared to the second quarter of 2017, primarily due to an increase in average sales proceeds per unit, partially offset by a decrease in volume of sales.
Direct container expense decreased $1.4 million, compared to the second quarter of 2017, mostly due to lower storage costs resulting from higher average utilization.
Depreciation expense decreased $1.9 million, compared to the second quarter of 2017, primarily due to an increase in future residual values used to compute depreciation expense on each of our three primary dry container types effective July 1, 2017, partially offset by the fleet growth.
Bad debt expense increased $1.3 million, compared to the second quarter of 2017, primarily due to a $1.2 millionprovision for two lessee defaults during the second quarter of 2018.
Interest expense increased $5.1 million, compared to the second quarter of 2017, mostly due to higher borrowing costs resulting from a higher ratio of fixed rate debt, a higher average debt balance, and higher interest rates. Realized gains (losses) on interest rate swaps, collars and caps, net, changed from a loss of $0.5 million from second quarter of 2017 to a gain of $1.5 million for second quarter 2018 due to the increase in interest rates.
Outlook
“We believe the increased lease-out demand we have seen in June and July will continue through the third quarter. Lessors have purchased more than 60% of this year’s production. Shipping lines continue to rely on lessors to provide the majority of their container needs for several reasons, including the impact of increased bunker prices on their profitability and an uncertain outlook due to actual and proposed tariffs,” commented Mr. Brewer. “We have not experienced a measurable impact to container demand as result of the current trade disputes. We do not expect the impact on our results to be significant absent a meaningful slowdown in global trade. To the extent that these disputes result in changes to established trade lanes and patterns, supply chains are likely to be rearranged and lengthened which is generally positive for container demand. However, we cannot at this time predict the extent of the impact resulting from future developments.
“Factory inventory has declined 25% since the end of the first quarter, currently at about 750 thousand TEU, demonstrating a measured approach to container orders by lessors and shipping lines in alignment with the strong container demand. Manufacturers produced an estimated 2.5 million TEU as of the end of June, close to a record level of production. Consistent with past practice, lessors quickly regulate their investment based on demand as evidenced by the industry-wide utilization in the high 90% range.
“New container prices have remained close to their current level of $2,200/CEU for more than a year. Resale prices remain at or near their historical highs. Worldwide depot inventory should remain low with near full utilization. Our overall fleet average rental rate is below current rates due in part to the low-cost containers purchased two to three years ago. Lease rates for new production and depot inventory provide very attractive yields and are well above our current fleet average. Adding these new containers will improve the overall yield of our fleet and increase lease rental income during the second half of the year,” concluded Mr. Brewer.
