Textainer Group Holdings Limited (TGH)

TGH 
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Textainer Group Holdings Limited (TGH)

Q4 2008 Earnings Call Transcript

February 11, 2009 11:00 am ET

Executives

Phil Brewer – EVP

John Maccarone – President and CEO

Ernie Furtado – SVP and CFO

Analysts

Justin Yagerman – Wachovia Capital Markets

Gregory Lewis – Credit Suisse

Rick Shane – Jefferies & Company

Brian Hogan – Piper Jaffray

Bill McKenzie – Lafitte Capital

Jordan Heimowitz – Philadelphia Financial

Ross DeMont – Midwood Capital

Mark Bishop [ph] – Boston and Company [ph]

Doug Waage – First Investors

Presentation

Operator

Hello and welcome to the Textainer Group Holdings Limited fourth quarter 2008 and full year results conference call. Before we begin today’s call, I would like to note that there is an accompanying PowerPoint presentation that can be found in the Investor Relations section of the Company’s website at www.textainer.com. There will be an opportunity for you to ask questions at the end of today’s presentation. (Operator instructions) For your information, this conference is being recorded. I would now like to turn the conference over to Mr. Phil Brewer, Executive Vice President. Please go ahead.

Phil Brewer

Good morning and thank you for joining us on today’s call. We are here to discuss Textainer’s fourth quarter 2008 and full year results that were reported on February 10th, 2009. Joining us on this morning’s call are John Maccarone, President and Chief Executive Officer, and Ernie Furtado, Senior Vice President and Chief Financial Officer.

Before I turn the call over to John and Ernie, I would like to point out that this conference call contains forward-looking statements within the meaning of U.S. securities laws. These statements involve risks and uncertainties, are only predictions, and may differ materially from actual future results, events or results. It is possible that the Company’s future financial performance may differ from expectations due to a variety of factors. Any forward-looking statements made during this call are based on certain current assumptions and analyses made by the Company in light of its experience and current perception of historical trends, conditions, expected future developments, and other factors it currently believes are appropriate. Any such statements are not a guarantee of future performance and actual results or developments may differ from those projected.

Finally, the Company’s views, estimates, plans, and outlook as described within this call may change subsequent to this discussion. The Company is under no obligation to modify or update any or all of the statements that are made herein despite any subsequent changes the Company may make in its views, estimates, plans or outlook for the future. For a discussion of such risks and uncertainties, see the “Risk Factors” included in the Company’s quarterly reports on Form 6-K for the three and nine months ended September 30th, 2008 and for the three months ended March 31st, 2008, filed with the Securities and Exchange Commission on November 10th, 2008, and May 14th, 2008, respectively.

I would also like to point out that during this call we will discuss non-GAAP financial measures. These non-GAAP 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 or can be found in the Company’s February 10, 2009 press release.

Turning to Slide Three, I would like to take a moment to review the agenda for today’s call. We will begin today’s call with John reviewing Textainer’s fourth quarter 2008 and the year end results and the current market environment. We’ll then turn the call over to Ernie to review the quarter and year-end financials. Finally, I will discuss the Company’s financial position and growth strategy before taking questions.

I would now like to turn the call over to John.

John Maccarone

Thank you and welcome to our fourth quarter 2008 conference call. I will begin on Slide Four. 2008 was Textainer’s best year in almost every area of its business. In addition to generating record net income, excluding unrealized losses on interest rates swaps of $2.03 a share for the year, we secured 212,000 TEU of long-term lease originations, maintained high utilization of 95%, sold 85,000 containers through our Resale team, renewed and expanded our debt facilities significantly enhancing our financial flexibility, and increasing our available credit to $680 million, and successfully entered the refrigerated container market, which we believe offers future growth opportunity by adding $50 million to $100 million of CapEx each year.

Further, with today’s announced dividend of $0.23 a share, we have declared cumulative dividends of $1.32 per share since our IPO, while maintaining a conservative payout ratio of slightly below 50%.

As we enter 2009, which is Textainer’s 30th anniversary year, we expect to find a much more challenging environment. Operating in this environment, Textainer intends to draw upon our industry leadership and size to serve our customers as well as our financial flexibility to take advantage of the weakness in the market and seek attractive opportunities in acquisitions, sale and leasebacks, and long-term lease originations.

Then we’ll discuss these opportunities in more detail later on the call, but now I would like to review the market environment in more detail. You may turn to Slide # Five. During the second half of 2008, a global financial crisis particularly affecting the credit markets as well as equity markets accelerated and may produce a prolonged global recession. Though we cannot predict the extent, timing, or ramifications of the slowdown, Textainer believes that the current downturn in the world’s major economies and the constraints in the credit markets could cause containerized cargo volumes to slow or become negative on some trade routes.

Typically, a slowdown in containerized cargo volume growth leads to a surplus of containers, lower utilization, higher direct costs, weaker shipping lines going out of business, and reduction in the size of container fleets. Overcapacity of container ships has caused freight rates to decline on many trade lanes, especially the Asia to Europe trade line.

According to The Economist, China’s exports will decline 6% in 2009 versus 2008 with a 19% decline in the first quarter of ’09 versus the first quarter of ’08. Today, our liner customers have taken several proactive measures to react to the situation. Specifically, they’ve laid up vessels. About 800,000 TEU or 6.5% of the world container ship capacity is in lay-up at this moment, according to AXS-Alphaliner. They’ve redelivered chartered vessels at the end of their charter period. More than half of the vessels in lay-up are chartered vessels.

They have started to sell their older container or offered them to Textainer and others for sale and also offered sale and leaseback of their newer containers. Later on in the call, we’ll talk about this point in more detail and how it represents a significant opportunity for Textainer.

And finally, they’ve tried to maximize redeliveries of leased containers from short-term leases and expired long-term leases. Of course, most customers are not leasing any containers at the moment, either.

The laying up of vessels has caused our utilization to decline. The combination of more off-hires and very few new on-hires since we achieved peak utilization of 97.5% at the end of the third quarter has caused utilization to decline to 92% as of the week ending January 30th. We do not expect to see any change in this trend until the second quarter at the earliest and likely later than that. We’ve also seen a softening market in the resales.

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