TAL International Group, Inc. (TAL)

TAL 
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TAL International Group, Inc. (TAL)

Q1 2009 Earnings Call

May 07, 2009, 9:00 am ET

Executives

Jeff Casucci - VP Treasury and IR

Brian Sondey - President and CEO

Chand Khan - SVP and CFO

Analysts

Jon Langenfeld - Robert W. Baird

Gregory Lewis - Credit Suisse

Art Hatfield - Morgan, Keegan & Company

Richard Shane - Jefferies & Company

Presentation

Operator

Good morning and welcome to the TAL International First Quarter 2009 Results Conference Call. For your information, all participants will be in a listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (Operator Instructions). This conference is being recorded and transcribed.

I would like to turn the conference over to Mr. Jeff Casucci, Vice President, Treasury and Investor Relations of TAL International. Mr. Casucci, please begin.

Jeff Casucci

Thank you. Good morning and thank you for joining us on today's call. We are here to discuss TAL's first quarter 2009 results, which we reported yesterday evening.

Joining me on this morning's call from TAL are Brian Sondey, President and Chief Executive Officer and Chand Khan, Chief Financial Officer.

Before I turn the call over to Brian and Chand, I would like to point out that this conference call may contain forward-looking statements, as that term is defined under the Private Securities Litigation Reform Act of 1995, regarding expectations for future financial performance.

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 on this call are based on certain assumptions and analysis made by the company in light of its experience and perception of historical trends, current condition, expected future developments, and other factors it believes are appropriate. Any such statements are not a guarantee of future performance, and actual results or developments may differ materially 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 is made herein, despite any changes to the company may make in its views, estimates, plans, or outlook for the future.

These statements involve risks and uncertainties, are only predictions, and may differ materially from actual future events or results.

For a discussion of such risks and uncertainties, please see the risk factors listed in the company's 2009 Annual Report filed on Form 10-K with the Securities and Exchange Commission.

With these formalities out of the way, I would now like to turn the call over to Brian Sondey. Brian?

Brian Sondey

Thanks Jeff. Welcome to TAL's first quarter 2009 earnings conference call. Overall, we are pleased with TAL's first quarter results given the tough market conditions we continue to face.

We remained solidly profitable in the first quarter and our cash level remains strong. Our leasing revenue and adjusted EBITDA were both up from the first quarter of 2008 due to our fleet growth last year.

Our annualized pre-tax return on equity was in the 20% range for the first quarter. Our operating cash flow remains well in excess of our scheduled debt service, which gives us great flexibility in our financing and investment decisions.

We continue to take advantage of unique high return investment opportunities made possible by the turbulent market conditions and we made progress in the first quarter in negotiating with our customers to slow down the rate of container returns.

Our ability to continue to deliver solid results despite the fact that we are now a few quarters into the worst ever decrease in container volumes, reflects the fact that we were in excellent shape as we entered this challenging period. And it reflects the strength of our leased portfolio and the resilience of our business model.

At the end of the first quarter of 2009 our core utilization stood at a quite respectable 88.5% and about two-thirds of our containers are still covered by long-term or finance leases.

Another factor that has mitigated the impact of the economic slowdown on TAL is the short ordering cycle for containers. As we discussed before containers are typically ordered only a few months before production.

Very few containers have been produced since the third quarter of 2008 and the container factories are essentially closed. So, new container capacity is not adding to the challenge of reduced trade volumes.

In addition, about 5% of the containers in the world age out of ocean transport each year. As a result, we expect that leasing demand will improve quickly once trade volumes return closer to 2008 levels.

While we are pleased with our first quarter performance and results there is no doubt that market conditions remain challenging. Trade volumes remain at a very low level and many of our customers continue to report that their container volumes are down 15% or more compared to last year.

We continue to see a high volume of container drop-offs, few container pick-ups and our utilization is continuing to fall. In addition, they are pressuring our leasing revenue decreasing utilization also leads to increased operating expenses.

The increased industry-wide inventory of idle containers is also placing pressure on our used container sales prices. And we expect our disposal gains to increasingly lag the gains we recorded in 2008 until trade volumes improved.

One area where we did not experience problems in the first quarter where we continue to have major concerns is in our customer credit risk. As we have discussed before our customers are being squeezed by the combination of increased vessel capacity and reduced trade volumes which has led to very weak freight rates on the major trade links.

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