TAL International Group, Inc. (TAL)

TAL 
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TAL International Group, Inc. (TAL)

Q1 2013 Earnings Call

April 25, 2013 9:00 AM ET

Executives

Jeffrey Casucci – VP, Investor Relations and Treasurer

Brian Sondey – President and CEO

John Burns – SVP and CFO

Analysts

Greg Lewis – Credit Suisse

Steven Kwok – KBW

Michael Webber – Wells Fargo

Sal Vitale – Sterne Agee

Doug Mewhirter – SunTrust

Daniel Furtado – Jefferies

Ken Hoexter – Bank of America

Presentation

Operator

Good morning and welcome to the TAL Group First Quarter 2013 Earnings Release and Conference Call. All participants will be a listen-only mode. (Operator Instructions). After today’s presentation there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr. Jeff Casucci. Please go ahead.

Jeffrey Casucci

Thank you. Good morning and thank you for joining us on today’s call. We are here to discuss TAL’s first quarter 2013 results which we reported yesterday evening. Joining me on this morning’s call from TAL are Brian Sondey, President and Chief Executive Officer

and John Burns, Senior Vice President and Chief Financial Officer. Before I turn the call over to Brian and John.

I would like to point out that this conference 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 conditions, expected future development 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 subsequent changes the company may make in its views, estimates, plans or outlook for the future. These statements involve risks and uncertainties and 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 located in the company’s annual report filed with the SEC.

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

Brian Sondey

Thanks Jeff. Welcome to TAL International’s first quarter 2013 earnings conference call. TAL’s results in the first quarter of 2013 provide a solid start what we think will be another year of strong operational and financial performance. In the first quarter, our leasing revenue increased 11% from the first quarter 2012 to the ongoing growth in our contain fleet and our adjusted pre-tax income increase 14% to reach a record level of a $1.63 per share.

Our record level of profitability this quarter was mainly driven by the strong growth in our contain fleet continued very high levels of utilization and historically high sale prices for our used containers. Our profitability in the first quarter also benefited from an unusual $2.5 million gain from lost containers and slower growth and depreciation expense to the changes in our depreciation expense calculations.

Our strong operating and financial performance continues to be supported by a favorable global supply and demand balance for containers. Containerized trade growth in the last few years is been moderate, but most of our shipping line customers have significantly reduced the direct container purchases, hoping to constraint the growth of the global container fleet. The resulting tight supply of containers continues to allow us to operate our container fleet at close to full utilization and also help support the current high sale prices for our older used containers.

Despite the fact that the first quarter is typically our weakest quarter of the year. Our utilization averaged 97.7% for the quarter and currently stands at 97.6%. Our used container sale prices for remained well above historical norms and we continue to generate sizeable gains in selling our older used containers. We expect the global supply and demand balance to continue to gradually normalize over time, but it should remain tight throughout 2013 and support continued strong financial performance for TAL.

The environment for new container investment seems likely to be less robust this year. Global containerized trade growth is currently projected to be in the 5% range for 2013. Slightly above the growth rate in 2012. However, pickups of container committed to lease happened fairly slow after the Chinese New Year holiday. We’ve also seen more shipping lines purchased containers directly this year and expect a leasing share of new procurement that fall below the roughly two-third level that we saw in 2012.

Leasing rates for new container transactions remain aggressive, perhaps due to the widespread availability of attractively priced long-term financing. Well market conditions have cooled somewhat for new container transactions. We still expect to have a successful year investing and in growing our fleet. More shipping lines are purchased and containers directly this year, few [ph] were doing so aggressively and we continue to expect leasing companies to purchase some majority of new containers in 2013.

We also think shipping lines will continue to be interested in sale lease back transactions for their existing containers. Year-to-date we have purchased roughly $350 million of new and sale lease back containers for delivery in 2013. As mentioned in the press release, we are increasing our dividend again this quarter to $0.66 per share. This increase reflects our continued strong performance and our expectations that market conditions will remain favorable for some time.

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