Textainer Group Holdings Limited Common Shares

conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. As a reminder, today's conference call is being recorded. I now turn the conference over to Tamara Bakarian, Investor Relations of Texaners Group Holdings Limited.

Thank you. Certain statements made during this conference call may contain forward-looking statements in accordance with U.S. securities laws. These statements involve risks and uncertainties or only predictions and may differ materially from actual future events or results. The company's views, estimates, plans, and outlook as described within this call may change after this discussion. The company is under no obligation to modify or update any or all statements that are made. We see the company's annual report on Form 20F for the year ended December 31st, 2022, filed with the Securities and Exchange Commission on February 14th, 2023, and going forward, any subsequent quarterly filings on Form 6K for additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements. During this call, we will discuss non-GAAP financial measures. As such 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 today's earnings press release. Finally, along with the earnings released today, we have also provided slides to accompany your comments on today's call. Both the earnings release and the earnings call presentation can be found on Textainer's investor relations website at investor.textainer.com. I would now like to turn the call over to Olivier Giscard, Textainer's president and chief executive officer, for his opening comments.

Thank you, Tamara. Good morning, everyone, and thank you for joining us today. I will begin by reviewing the highlights of second quarter results, followed by additional perspective on the industry. Michael will then go over our financial results in greater detail, after which we will open the call for your questions. We are very happy with our second quarter 2023 earnings results, which continue to demonstrate the benefits of our long-term contracted revenue and strong utilization levels. For the second quarter, adjusted net income was $51 million, or $1.20 per share, and with resilient lease rental income at $192 million. Our utilization rate has continued to support our top line, remaining very firm at nearly 99%. This results from both a reduction of our container turn-in, as well as our continued success in renewing maturing leases, a testament to our strong customer relationships and proactive actions. Additionally, despite the current interest rate landscape, our financing costs remain well under control, thanks to our policy of long-term interest hedges and active deleveraging strategy. Gain on sale for the quarter continued to normalize, but remained nicely profitable on the back of slightly higher volumes being disposed. The secondhand market was marked by geographical disparities with slower demand in Europe, but an increase in demand and price level in China, which is by far our largest outlet for all the containers. For the quarter, our resale activity generated a profit of $7.7 million with ongoing significant cash generation. Overall, the container shipping market remained stable through the second quarter, and we have now observed initial signs of higher ship loading as well as firming up ocean freight rates on major shipping routes. There is growing optimism that August will see further ocean freight rate hikes, especially on the trans-Pacific routes, where ship utilization has recently been much stronger. Our customers also expect inventory destocking cycles in the U.S. to come to an end soon, paving the way for the need to replenish inventory ahead of the winter holiday season. As such, our shipping line customers anticipate cargo volume to pick up in the second half of the year. For all parts, we expect this market situation to provide support for high-speed utilization and at least renewal as new built containers remain more expensive at about $2,200 per CU. At the same time, orders for new containers remain minimal at only 650,000 TU so far this year as the industry continues to absorb the elevated production volumes of the COVID super cycle. We view this situation as positive for the industry as demand for cargo is recovering from its recent lows. In effect, the global fleet of shipping containers is likely to remain stable or even decrease slightly this year. Factory inventory has declined to about 850,000 TU from level well above 1 million TU at the start of the year, and production for the rest of the year is expected to remain muted. We did see some small CAPEX deployment towards the end of the quarter, which were focused on special equipment and pre-committed long-term leases due to start in the third quarter of the year. But we do not anticipate substantial follow-up order at this stage. Our ongoing strategy for new container investment remain to focus in securing back-to-back container leases, keeping uncommitted new inventory at a minimum. This disciplined approach ensures a readiness to pivot when new long-term profitable capex opportunity arise to drive long-term value creation. In the present climate, where investment opportunity remain limited, our attention remains towards the efficient allocation of a free cash flow to optimize shareholder value. To this end, we're pleased to report that we have repurchased 1.1 million common share this quarter allowing us to reach a total of 5.5% of our outstanding common shares we purchased since the beginning of the year. We are also very pleased to report that our board has authorized an additional $100 million increase in our buyback program and continues to view our buyback program as a creative and beneficial to long-term value for our shareholders. Our current market outlook remains firm and continued stability and optimism. The IMF has recently revised its world GDP growth projection upwards to 3% from 2.8%. Inflation appears to be moderating and consumer spending was up 1.6% for the second quarter in the U.S. The shipping industry has started to see cargo volume recover over the past few weeks and ocean freight rates have likewise started to firm up. Container industry players have remained disciplined with very limited container production and stable manufacturing prices at $2,200 per CU. Fleet utilization is stable and is expected to remain elevated for the foreseeable future, which will minimize storage costs. Our lease revenue continues to be well protected with six years' worth of lease rental income under firm contracts. Likewise, of financing costs are controlled due to corresponding fixed rate debt. Gain on sale of all the containers have normalized, but continue to generate profits in excess of 20% of NBV. Looking further out, shipping lines have a large order book of ships to be delivered in the coming quarters. This will eventually require additional container usage and drive container fleet growth opportunities. Also, IMO recently issued greenhouse gas emission target calling for a 40% reduction in emission by 2030 will require shipping lines to continue to upgrade their fleet while slowing down ship's rotation to reduce fuel consumption, thereby requiring larger container fleet to transport the same amount of cargo. Finally, shipping line remain financially strong with robust balance sheet and continue to be mostly profitable despite current environment and low cargo volumes and freight rates. To conclude, we are very proud of the resilience exhibited throughout the first half of the year, and we continue to effectively navigate the demand landscape, remaining steadfast in our strategic objective of focusing on intrinsic share value creation. We anticipate continued strong operational performance in the future. Our strong cash flow generation allows us to focus on our capital allocation to optimize returns to shareholders, to robust share buyback and regular dividends, while deleveraging the higher interest rate portion of our unhedged debt. I will now turn the call over to Michael, who will give you a little more color about our financial results for the second quarter.