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Textainer Group Holdings Limited Reports Second-Quarter 2019 Results

HAMILTON, Bermuda, Aug. 6, 2019 /PRNewswire/ -- Textainer Group Holdings Limited (TGH) ("Textainer", "the Company", "we" and "our"), one of the world's largest lessors of intermodal containers, today reported financial results for the second-quarter ended June 30, 2019.

Key Financial Information (in thousands except for per share and TEU amounts) and Business Highlights:



QTD




Q2 2019



Q1 2019



Q2 2018


Lease rental income (1)


$

155,110



$

155,526



$

149,203


Gain on sale of owned fleet containers, net


$

5,404



$

6,767



$

11,403


Income from operations


$

45,918



$

58,700



$

52,280


Net income attributable to Textainer Group Holdings

   Limited common shareholders


$

314



$

17,050



$

17,506


Net income attributable to Textainer Group Holdings

   Limited common shareholders per diluted common share


$

0.01



$

0.30



$

0.30


Adjusted net income (2)


$

9,006



$

22,442



$

17,731


Adjusted net income per diluted common share (2)


$

0.16



$

0.39



$

0.31


Adjusted EBITDA (2)


$

114,745



$

118,129



$

109,140


Average fleet utilization



97.9

%



98.3

%



97.9

%

Total fleet size at end of period (TEU)



3,601,681




3,410,710




3,354,085


Owned percentage of total fleet at end of period



80.9

%



79.5

%



75.7

%



(1)

"Lease rental income" includes both owned and managed fleet lease rental income. See note (a) within the attached Condensed Consolidated Statements of Comprehensive Income.



(2)

"Adjusted net income" 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. Section "Reconciliation of GAAP financial measures to non-GAAP financial measures" provides certain qualifications and limitations on the use of Non-GAAP Measures.

 

  • Lease rental income of $155.1 million for the second quarter, as compared to $155.5 million in the first quarter of 2019;
  • Adjusted net income of $9.0 million for the second quarter, or $0.16 per diluted common share, as compared to $22.4 million, or $0.39 per diluted common share in the first quarter of 2019;
  • Adjusted EBITDA of $114.7 million for the second quarter;
  • Amended the existing $1.2 billion warehouse facility on July 29, 2019 to reduce pricing by 15 basis points and extend tenor by three years, improving capital structure and financial flexibility;
  • Utilization averaged 97.9% for the second quarter, as compared to 98.3% for the first quarter of 2019; and
  • Container investments of approximately $440 million during the second quarter, for a total of $640 million delivered during the first half of the year.

"In the second quarter we maintained stable lease rental income of $155.1 million and adjusted EBITDA of $114.7 million.  While the overall market remained muted, we proactively helped some valued customers replace portions of their aging fleet with favorably priced new equipment at attractive yields and terms for Textainer. During the first six months of the year, our capex was $640 million as we leveraged these mutually beneficial opportunities in an otherwise slow and mostly unappealing market. Our remaining uncommitted inventory has remained stable for the quarter and is at an appropriate level for the current market conditions," stated Olivier Ghesquiere, President and Chief Executive Officer of Textainer Group Holdings Limited. 

Ghesquiere continued, "Unfortunately, our adjusted net income for the second quarter was negatively affected by container impairment and bad debt expense of $9.1 million and $3.3 million, respectively, related to a non-performing lessee. This lessee had a longstanding relationship with Textainer and was profitable until information about alleged financial misappropriation emerged this quarter, leading to sudden operating disruptions and payment problems. The lessee is currently undergoing a restructuring program, involving a government-controlled entity with a track record of asset management activities, that may return it to normal operating performance. Nonetheless, we have established reserves for potential losses while actively seeking the return of containers. Additional impairments from these containers, if any, would be covered by our insurance policy and will not further impact our future financial performance. Excluding the impact of these charges for this non-performing lessee, adjusted net income would have totaled $21.4 million, relatively stable compared to the first quarter."

Ghesquiere concluded, "We expect container demand to remain muted during the third quarter, while the outlook for the fourth quarter remains uncertain pending global economic activity levels and developments in the ongoing trade disputes. However, the fundamentals of our business remain positive, and we are encouraged by the limited new container orders and recent factory shutdowns, high utilization across the industry, and favorable container resale environment. We remain disciplined on lease yields and will continue to deploy capital in the current operating environment only when the right opportunities arise. We will also continue to normalize our costs and keep our balance sheet well-positioned to capitalize on potential market opportunities." 

Second-Quarter Results

Lease rental income was relatively flat with a decrease of $0.4 million from the first quarter of 2019, which included a slight reduction in utilization. Lease rental income increased $5.9 million from the second quarter of 2018 resulting from an increase in fleet size.

Gain on sale of owned fleet containers, net, decreased $1.4 million and $6.0 million from the first quarter of 2019 and second quarter of 2018, respectively, and included a reduction in the average gain per container sold. On the other hand, trading container margin increased $0.8 million and $3.3 million from the first quarter of 2019 and second quarter of 2018, respectively, due to an increase in both per unit margin and sales volume.

Direct container expense – owned fleet, decreased $0.9 million and $2.7 million compared to the first quarter of 2019 and second quarter of 2018, respectively, primarily from a reduction in repositioning expense and maintenance expense.

General and administrative expense decreased $0.4 million and $1.3 million from the first quarter of 2019 and second quarter of 2018, respectively, primarily resulting from a decrease in compensation costs and professional fees.

Container impairment included a $9.1 million write-off for the estimated unrecoverable containers held by a non-performing lessee. Bad debt expense included $3.3 million to fully reserve for the same lessee.

Unrealized loss on interest rate swaps, collars and caps, net, was $10.1 million for the quarter, resulting from a decrease in the forward LIBOR curve at the end of the quarter which reduced the value of our interest rate derivatives. This is a non-cash loss that flows through our net income as we have elected not to designate our derivative instruments under hedge accounting. Textainer manages interest rate risk on a portion of its floating rate debt by entering into interest rate derivatives. Our hedging policy lessens volatility from our effective interest rate. Textainer intends to hold the underlying hedges until maturity.

Conference Call and Webcast

A conference call to discuss the financial results for the second quarter 2019 will be held at 5:00 pm EDT on Tuesday, August 6, 2019. The dial-in number for the conference call is 1-877-407-9039 (U.S. & Canada) and 1-201-689-8470 (International). The call and archived replay may also be accessed via webcast on Textainer's Investor Relations website at http://investor.textainer.com.

About Textainer Group Holdings Limited

Textainer has operated since 1979 and is one of the world's largest lessors of intermodal containers with more than 3.5 million TEU in our owned and managed fleet. We lease containers to approximately 250 customers, including all of the world's leading international shipping lines, and other lessees. Our fleet consists of standard dry freight, refrigerated intermodal containers, and dry freight specials. We also lease tank containers through our relationship with Trifleet Leasing and are a supplier of containers to the U.S. Military. Textainer is one of the largest and most reliable suppliers of new and used containers. In addition to selling older containers from our lease fleet, we buy older containers from our shipping line customers for trading and resale. We sold an average of almost 140,000 containers per year for the last five years to more than 1,500 customers making us one of the largest sellers of used containers. Textainer operates via a network of 14 offices and approximately 500 independent depots worldwide.

Important Cautionary Information Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of U.S. securities laws. Forward-looking statements include statements that are not statements of historical facts and include, without limitation, statements regarding: (i) currently non-performing lessee returning to normal operating performance; (ii) additional impairment from the non-performing lessee, if any, would be covered by insurance and will not further impact our future financial performance; and (iii) global container demand will remain muted during the third quarter while the outlook for the fourth quarter remains uncertain pending global economic activity levels and developments in the ongoing trade disputes. Readers are cautioned that these forward-looking statements involve risks and uncertainties, are only predictions and may differ materially from actual future events or results. These risks and uncertainties include, without limitation, the following items that could materially and negatively impact our business, results of operations, cash flows, financial condition and future prospects: any deceleration or reversal of the current domestic and global economic conditions; lease rates may decrease and lessees may default, which could decrease revenue and increase storage, repositioning, collection and recovery expenses; the demand for leased containers depends on many political and economic factors and is tied to international trade and if demand decreases due to increased barriers to trade or political or economic factors, or for other reasons, it reduces demand for intermodal container leasing; as we increase the number of containers in our owned fleet, we increase our capital at risk and may need to incur more debt, which could result in financial instability; Textainer faces extensive competition in the container leasing industry which tends to depress returns; the international nature of the container shipping industry exposes Textainer to numerous risks; gains and losses associated with the disposition of used equipment may fluctuate; our indebtedness reduces our financial flexibility and could impede our ability to operate; and other risks and uncertainties, including those set forth in Textainer's filings with the Securities and Exchange Commission. For a discussion of some of these risks and uncertainties, see Item 3 "Key Information— Risk Factors" in Textainer's Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 25, 2019.

Textainer's views, estimates, plans and outlook as described within this document may change subsequent to the release of this press release. Textainer is under no obligation to modify or update any or all of the statements it has made herein despite any subsequent changes Textainer may make in its views, estimates, plans or outlook for the future.

Textainer Group Holdings Limited
Investor Relations
Phone: +1 (415) 658-8333
ir@textainer.com

TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

Three and Six Months Ended June 30, 2019 and 2018

(Unaudited)

(All currency expressed in United States dollars in thousands, except per share amounts)




Three Months Ended June 30,



Six Months Ended June 30,




2019



2018



2019



2018


Revenue:

































Lease rental income - owned fleet






$

129,306







$

121,583







$

258,279







$

241,805


Lease rental income - managed fleet (a)







25,804








27,620








52,357








56,024


Lease rental income







155,110








149,203








310,636








297,829



































Management fees - non-leasing (a)







1,940








2,470








4,241








4,285



































Trading container sales proceeds (b)







15,527








3,157








28,827








5,558


Cost of trading containers sold (b)







(12,170)








(3,111)








(22,902)








(5,216)


Trading container margin







3,357








46








5,925








342



































Gain on sale of owned fleet containers, net (b)







5,404








11,403








12,171








18,030



































Operating expenses:

































Direct container expense - owned fleet







10,786








13,454








22,433








27,150


Distribution to managed fleet container investors (a)







23,737








25,531








48,217








51,762


Depreciation expense







61,667








57,793








122,611








114,127


Container impairment







10,918








938








11,718








1,770


Amortization expense







493








958








1,095








2,780


General and administrative expense (c)







9,444








10,778








19,274








21,178


Bad debt expense, net







3,689








1,390








3,848








783


Gain on insurance recovery and legal settlement







(841)








-








(841)








-


Total operating expenses







119,893








110,842








228,355








219,550


Income from operations







45,918








52,280








104,618








100,936


Other (expense) income:

































Interest expense







(38,213)








(34,513)








(75,729)








(66,132)


Interest income







729








404








1,367








707


Realized gain on interest rate swaps, collars and caps, net







1,095








1,499








2,539








2,683


Unrealized (loss) gain on interest rate swaps, collars and caps, net







(10,099)








(37)








(15,837)








2,226


Other, net














(2)
















Net other expense







(46,488)








(32,649)








(87,660)








(60,516)


Loss (income) before income tax and noncontrolling interests







(570)








19,631








16,958








40,420


Income tax benefit (expense)







221








(926)








(152)








(1,486)


Net (loss) income







(349)








18,705








16,806








38,934


Less: Net loss (income) attributable to the noncontrolling

   interests







663








(1,199)








558








(2,710)


Net income attributable to Textainer Group Holdings Limited common shareholders






$

314







$

17,506







$

17,364







$

36,224


Net income attributable to Textainer Group Holdings Limited common shareholders per share:

































Basic






$

0.01







$

0.31







$

0.30







$

0.63


Diluted






$

0.01







$

0.30







$

0.30







$

0.63


Weighted average shares outstanding (in thousands):

































Basic







57,500








57,121








57,488








57,110


Diluted







57,576








57,441








57,578








57,487


Other comprehensive (loss) income:

































Foreign currency translation adjustments







(40)








(95)








67








11


Comprehensive (loss) income







(389)








18,610








16,873








38,945


Comprehensive loss (income) attributable to the noncontrolling interests







663








(1,199)








558








(2,710)


Comprehensive income attributable to Textainer Group Holdings Limited common shareholders






$

274







$

17,411







$

17,431







$

36,235




(a) 

Management fees for managed fleet leasing revenue for the periods ended June 30, 2018 have been reclassified to present the gross amount of revenue and expense under separate line items "lease rental income – managed fleet" and "distribution to managed fleet container investors" to conform with the 2019 presentation. Management fees - non-leasing include acquisition fees and sales commission earned on the managed fleet.



(b) 

Amounts for the periods ended June 30, 2018 have been reclassified to conform with the 2019 presentation.



(c) 

Amounts for the periods ended June 30, 2018 have been reclassified out of the separate line items "short term incentive compensation expense" and "long term incentive compensation expense" and included within "general and administrative expense" to conform with the 2019 presentation. 

 

TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

June 30, 2019 and December 31, 2018

(Unaudited)

(All currency expressed in United States dollars in thousands)




2019



2018


Assets









Current assets:









Cash and cash equivalents


$

148,803



$

137,298


Accounts receivable, net of allowance for doubtful accounts of $8,451 and $5,729, respectively (a)



134,382




134,225


Net investment in direct financing and sales-type leases



37,704




39,270


Container leaseback financing receivable



10,894




-


Trading containers



27,149




40,852


Containers held for sale



26,708




21,874


Prepaid expenses and other current assets (a)



13,731




23,139


Due from affiliates, net



1,763




1,692


Total current assets



401,134




398,350


Restricted cash



95,201




87,630


Containers, net of accumulated depreciation of $1,380,661 and $1,322,221, respectively



4,236,358




4,134,016


Net investment in direct financing and sales-type leases



197,429




127,790


Container leaseback financing receivable



217,069




-


Fixed assets, net of accumulated depreciation of $11,874 and $11,525, respectively



1,970




2,066


Intangible assets, net of accumulated amortization of $44,361 and $43,266, respectively



6,289




7,384


Interest rate swaps, collars and caps



1,060




5,555


Deferred taxes



2,089




2,087


Other assets



15,049




3,891


Total assets


$

5,173,648



$

4,768,769


Liabilities and Equity









Current liabilities:









Accounts payable and accrued expenses (a)


$

23,000



$

27,297


Container contracts payable



328,601




42,710


Other liabilities



2,202




219


Due to container investors, net (a)



22,880




30,672


Debt, net of unamortized deferred financing costs of $6,362 and $5,738, respectively



194,812




191,689


Total current liabilities



571,495




292,587


Debt, net of unamortized deferred financing costs of $22,070 and $22,248, respectively



3,292,651




3,218,138


Interest rate swaps, collars and caps



14,981




3,639


Income tax payable



9,774




9,570


Deferred taxes



6,955




7,039


Other liabilities



25,464




1,805


Total liabilities



3,921,320




3,532,778


Equity:









Textainer Group Holdings Limited shareholders' equity:









Common shares, $0.01 par value. Authorized 140,000,000 shares; 58,076,518 shares issued and 57,446,518 shares outstanding at 2019; 58,032,164 shares issued and 57,402,164 shares outstanding at 2018



581




581


Treasury shares, at cost, 630,000 shares



(9,149)




(9,149)


Additional paid-in capital



408,291




406,083


Accumulated other comprehensive loss



(369)




(436)


Retained earnings



827,098




809,734


Total Textainer Group Holdings Limited shareholders' equity



1,226,452




1,206,813


Noncontrolling interests



25,876




29,178


Total equity



1,252,328




1,235,991


Total liabilities and equity


$

5,173,648



$

4,768,769




(a) Certain amounts for the year ended December 31, 2018 have been reclassified to present the gross amounts of accounts receivable, prepaid expenses, accounts payable and accrued expenses arising from the managed fleet instead of the net presentation.


 

TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30, 2019 and 2018

(Unaudited)

(All currency expressed in United States dollars in thousands)




2019



2018


Cash flows from operating activities:









Net income


$

16,806



$

38,934


Adjustments to reconcile net income to net cash provided by operating activities:









Depreciation expense



122,611




114,127


Container impairment



11,718




1,770


Bad debt expense, net



3,848




783


Unrealized loss (gain) on interest rate swaps, collars and caps, net



15,837




(2,226)


Amortization and write-off of unamortized deferred debt issuance costs and accretion of bond discounts



3,875




4,381


Amortization of intangible assets



1,095




2,780


Gain on sale of owned fleet containers, net



(12,171)




(18,030)


Gain on insurance recovery and legal settlement



(841)





Share-based compensation expense



2,115




3,024


Changes in operating assets and liabilities



48,216




12,333


Total adjustments



196,303




118,942


Net cash provided by operating activities



213,109




157,876


Cash flows from investing activities:









Purchase of containers and fixed assets



(336,153)




(459,970)


Proceeds from sale of containers and fixed assets



70,591




73,452


Net cash used in investing activities



(265,562)




(386,518)


Cash flows from financing activities:









Proceeds from debt



550,634




870,750


Principal payments on debt



(472,667)




(626,331)


Debt issuance costs



(3,854)




(3,010)


Dividends paid to noncontrolling interest



(2,744)




(1,996)


Issuance of common shares upon exercise of share options



93




25


Net cash provided by financing activities



71,462




239,438


Effect of exchange rate changes



67




11


Net increase in cash, cash equivalents and restricted cash



19,076




10,807


Cash, cash equivalents and restricted cash, beginning of the year



224,928




237,569


Cash, cash equivalents and restricted cash, end of the period


$

244,004



$

248,376


TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Reconciliation of GAAP financial measures to non-GAAP financial measures
Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)
(All currency expressed in United States dollars in thousands, except per share amounts)

The following is a reconciliation of certain GAAP measures to non-GAAP financial measures (such items listed in (a) to (c)  below and defined as "Non-GAAP Measures") for the three and six months ended June 30, 2019 and 2018, including:

(a) 

net income attributable to Textainer Group Holdings Limited common shareholders to adjusted EBITDA (Adjusted EBITDA defined as net income attributable to Textainer Group Holdings Limited common shareholders before interest income and expense, realized gain on interest rate swaps, collars and caps, net, unrealized loss (gain) on interest rate swaps, collars and caps, net, gain on insurance recovery and legal settlement, income tax expense, net income attributable to the noncontrolling interests ("NCI"), depreciation expense, container impairment, amortization expense and the related impact of reconciling items on net income attributable to the NCI);



(b) 

net income attributable to Textainer Group Holdings Limited common shareholders to adjusted net income (defined as net income attributable to Textainer Group Holdings Limited common shareholders before unrealized loss (gain) on interest rate swaps, collars and caps, net, gain on insurance recovery and legal settlement, the related impact of reconciling items on income tax expense and net income attributable to the NCI); and



(c) 

net income attributable to Textainer Group Holdings Limited common shareholders per diluted common share to adjusted net income per diluted common share (defined as net income attributable to Textainer Group Holdings Limited common shareholders per diluted common share before unrealized loss (gain) on interest rate swaps, collars and caps, net, gain on insurance recovery and legal settlement, the related impact of reconciling items on income tax expense and net income attributable to the NCI).

Non-GAAP Measures are not financial measures calculated in accordance with U.S. generally accepted accounting principles ("GAAP") and should not be considered as an alternative to net income, income from operations or any other performance measures derived in accordance with GAAP or as an alternative to cash flows from operating activities as a measure of our liquidity. Non-GAAP Measures are presented solely as supplemental disclosures. Management believes that adjusted EBITDA may be a useful performance measure that is widely used within our industry and adjusted net income may be a useful performance measure because Textainer intends to hold its interest rate swaps, collars and caps until maturity and over the life of an interest rate swap, collar or cap the unrealized loss (gain) will net to zero. Adjusted EBITDA is not calculated in the same manner by all companies and, accordingly, may not be an appropriate measure for comparison.

Management also believes that adjusted net income and adjusted net income per diluted common share are useful in evaluating our operating performance because unrealized loss (gain) on interest rate swaps, collars and caps, net, is a noncash, non-operating item. We believe Non-GAAP Measures provide useful information on our earnings from ongoing operations. We believe that adjusted EBITDA provides useful information on our ability to service our long-term debt and other fixed obligations and on our ability to fund our expected growth with internally generated funds. Non-GAAP Measures have limitations as analytical tools, and you should not consider either of them in isolation, or as a substitute for analysis of our operating results or cash flows as reported under GAAP. Some of these limitations are:

  • They do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
  • They do not reflect changes in, or cash requirements for, our working capital needs;
  • Adjusted EBITDA does not reflect interest expense or cash requirements necessary to service interest or principal payments on our debt;
  • Although depreciation expense and container impairment are a noncash charge, the assets being depreciated may be replaced in the future, and neither adjusted EBITDA, adjusted net income or adjusted net income per diluted common share reflects any cash requirements for such replacements;
  • They are not adjusted for all noncash income or expense items that are reflected in our statements of cash flows; and
  • Other companies in our industry may calculate these measures differently than we do, limiting their usefulness as comparative measures.

 



Three Months Ended



Six Months Ended




June 30,



June 30,




2019



2018



2019



2018




(Dollars in thousands)



(Dollars in thousands)




(Unaudited)



(Unaudited)


Reconciliation of adjusted net income:

















Net income attributable to Textainer Group Holdings

   Limited common shareholders


$

314



$

17,506



$

17,364



$

36,224


Adjustments:

















Unrealized loss (gain) on interest rate swaps, collars and caps, net



10,099




37




15,837




(2,226)


Gain on insurance recovery and legal settlement



(841)







(841)





Impact of reconciling items on income tax (benefit) expense



(89)







(146)




22


Impact of reconciling items on net (loss) income attributable to the noncontrolling interests



(477)




188




(765)




719


Adjusted net income


$

9,006



$

17,731



$

31,449



$

34,739


Reconciliation of adjusted net income per diluted common share:

















Net income attributable to Textainer Group Holdings

   Limited common shareholders per diluted common share


$

0.01



$

0.30



$

0.30



$

0.63


Adjustments:

















Unrealized loss (gain) on interest rate swaps, collars and caps, net



0.18







0.28




(0.04)


Gain on insurance recovery and legal settlement



(0.02)







(0.02)





Impact of reconciling items on income tax (benefit) expense













Impact of reconciling items on net (loss) income attributable to the noncontrolling interests



(0.01)




0.01




(0.01)




0.01


Adjusted net income per diluted common share


$

0.16



$

0.31



$

0.55



$

0.60





















 



Three Months Ended



Six Months Ended




June 30,



June 30,




2019



2018



2019



2018




(Dollars in thousands)



(Dollars in thousands)




(Unaudited)



(Unaudited)


Reconciliation of adjusted EBITDA:

















Net income attributable to Textainer Group Holdings

   Limited common shareholders


$

314



$

17,506



$

17,364



$

36,224


Adjustments:

















Interest income



(729)




(404)




(1,367)




(707)


Interest expense



38,213




34,513




75,729




66,132


Realized gain on interest rate swaps, collars and caps, net



(1,095)




(1,499)




(2,539)




(2,683)


Unrealized loss (gain) on interest rate swaps, collars and caps, net



10,099




37




15,837




(2,226)


Gain on insurance recovery and legal settlement



(841)







(841)





Income tax (benefit) expense



(221)




926




152




1,486


Net (loss) income attributable to the noncontrolling interests



(663)




1,199




(558)




2,710


Depreciation expense



61,667




57,793




122,611




114,127


Container impairment



10,918




938




11,718




1,770


Amortization expense



493




958




1,095




2,780


Impact of reconciling items on net (loss) income attributable to the noncontrolling interests



(3,410)




(2,827)




(6,327)




(5,220)


Adjusted EBITDA


$

114,745



$

109,140



$

232,874



$

214,393



















 

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