TAL International Group, Inc. (TAL)

TAL 
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TAL International Group, Inc. (TAL)

Q3 2010 Earnings Conference Call

October 28, 2010 9:00 AM ET

Executives

Jeff Casucci – VP, Treasury and IR

Brian Sondey – President and CEO

John Burns – SVP and CFO

Analysts

Jon Langenfeld – Baird

Art Hatfield – Morgan Keegan

Sal Vitale – Stern Agee

Greg Lewis – Credit Suisse

Brendan Sheehan – KBW

Daniel Furtado – Jefferies

Presentation

Operator

Good morning and welcome to the TAL International Group third quarter 2010 earnings call. All participants will be in listen lonely mode. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Jeff Casucci. Please go ahead.

Jeff Casucci

Good morning and thank you for joining us on today’s call. We are here to discuss TAL’s third quarter 2010 results which were 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 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 any or all of the statement it has 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, 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 annual report filed on Form 10-K with the SEC.

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

Brian Sondey

Thanks Jeff. Welcome to TAL’s third quarter 2010 earnings conference call. With our outstanding performance in the third quarter, TAL has entered a new phase in the second half of 2010. The first half of 2010 was mainly about recovery, and TAL’s income improved rapidly as trade volumes and our utilization recovered from the 2009 global recession.

The second half of 2010 is about growth and we are now increasingly seeing the benefits of our aggressive investment this year as containers are being delivered and placed on hire in very large numbers.

The strength of the leasing market and the benefits of our aggressive investment are apparent in our third quarter operating statistics. In the third quarter over 90,000 TEU drive containers were picked up by customers while less than 9,000 TEU were dropped off.

Utilization continued to move upwards and our utilization averaged 98.1% in the third quarter and 98.6% as of October 27. Used container sale prices now exceed peak 2008 levels and our average dry container lease rates increased 6.3% during the third quarter as 2009 incentive deals expired and new containers were placed on hire at very high lease rates. Our average dry container lease rates now exceed our average rates in 2008.

The strength in our operational performance and our aggressive investment, led to significant growth in our top and bottom line financial measures. Leasing revenue increased 13.5% from the second quarter of 2010 to the third quarter, as more of our new units were delivered and placed on hire.

Adjusted EBITDA increased 18.5% from the second quarter to the third quarter and our adjusted pretax income increased 28.9% due to our revenue growth, operating expense reductions and strong used container disposal gains.

TAL continues to benefit from strong leasing demand and a global shortage of containers. Containerized trade volumes have recovered sharply in 2010 and container volumes are generally reaching or exceeding pre-crisis levels, especially in the Asian export markets that drive most of our leasing demand.

At the same time, global container capacity remains constrained. Due to a complete lack of buying in 2009, ongoing disposals, the impact of vessels still steaming and container factory production constraints in 2010. This combination of recovering trade volumes and restricted container capacity has resulted in a severe global shortage of containers this year and exceptional leasing demand.

TAL continued to invest aggressively in the third quarter and we have reached a record level of investment and growth in 2010. So far this year, we’ve ordered $875 million of new containers for delivery in 2010. This includes over 300,000 TEU of dry containers and over 24,000 TEU of refrigerated containers.

We’ve also made significant investments this year in our tank container product line as we have seen strong demand for this equipment as well. The vast majority of the equipment we’ve ordered has already been firmly committed to leases, and for leases we have completed, the average duration for our leases is about 6 ½ years for new dry containers and about 5 ½ years for new refrigerated containers.

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