UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO
RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
Commission File Number
(Translation of Registrant’s name into English)
(441) 296-2500
(Address of principal executive office)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class |
Trading Symbols |
Name of each exchange on which registered |
Common Shares, $0.01 par value |
TGH |
New York Stock Exchange |
7.00% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preference Shares, $0.01 par value |
TGH PRA |
New York Stock Exchange |
6.25% Series B Fixed Rate Cumulative Redeemable Perpetual Preference Shares, $0.01 par value |
TGH PRB |
New York Stock Exchange |
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes No
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): Not applicable
1
TEXTAINER GROUP HOLDINGS LIMITED
Quarterly Report on Form 6-K for the Three Months Ended March 31, 2023
Table of Contents
2
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS; CAUTIONARY LANGUAGE
This Quarterly Report on Form 6-K, including the section entitled Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements within the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that are not statements of historical facts and may relate to, but are not limited to, expectations or estimates of future operating results or financial performance, capital expenditures, regulatory compliance, plans for growth and future operations, as well as assumptions relating to the foregoing. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential,” “continue” or the negative of these terms or other similar terminology. The forward-looking statements contained in this Quarterly Report on Form 6-K include, but are not limited to, statements regarding (i) factors that are likely to continue to affect our performance and (ii) our belief that, assuming that our lenders remain solvent that our cash flow from operations, proceeds from the sale of containers and borrowing availability under our debt facilities are sufficient to meet our liquidity needs, including for the payment of dividends, for the next twelve months.
Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy, and actual results may differ materially from those we anticipated due to a number of uncertainties, many of which cannot be foreseen. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including, among others, the risk described in Item 4, “Risk Factors” of this Quarterly Report on Form 6-K and the risks we face that are described in the section entitled Item 3, “Key Information -- Risk Factors” included in our Annual Report on Form 20-F for the fiscal year ended December 31, 2022 filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 14, 2023 (our “2022 Form 20-F”).
We believe that it is important to communicate our expectations about the future to potential investors, shareholders and other readers. However, there may be events in the future that we are not able to accurately predict or control and that may cause actual events or results to differ materially from the expectations expressed in or implied by our forward-looking statements. The risk factors listed in Item 3, “Key Information -- Risk Factors” included in our 2022 Form 20-F, as well as any cautionary language in this Quarterly Report on Form 6-K, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Before you decide to buy, hold or sell our common shares, you should be aware that the occurrence of the events described in Item 3, “Key Information -- Risk Factors” included in our 2022 Form 20-F and elsewhere in this Quarterly Report on Form 6-K could negatively impact our business, cash flows, results of operations, financial condition and share price. Potential investors, shareholders and other readers are cautioned not to place undue reliance on our forward-looking statements.
Forward-looking statements regarding our present plans or expectations for fleet size, management contracts, container purchases, sources and availability of financing, and growth involve risks and uncertainties relative to return expectations and related allocation of resources, and changing economic or competitive conditions, as well as the negotiation of agreements with container investors, which could cause actual results to differ from present plans or expectations, and such differences could be material. Similarly, forward-looking statements regarding our present expectations for operating results and cash flow involve risks and uncertainties related to factors such as utilization rates, per diem rates, container prices, demand for containers by container shipping lines, supply, the anticipated trends and effects in respect of the COVID-19 pandemic and post-pandemic, and other factors discussed under Item 3, “Key Information -- Risk Factors” included in our 2022 Form 20-F or elsewhere in this Quarterly Report on Form 6-K, which could also cause actual results to differ from present plans. Such differences could be material.
All future written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. New risks and uncertainties arise from time to time, and we cannot predict those events or how they may affect us. The forward-looking statements contained in this Quarterly Report on Form 6-K speak only as of, and are based on information available to us on, the date of the filing of this Quarterly Report on Form 6-K. We assume no obligation to, and do not plan to, update any forward-looking statements after the date of this Quarterly Report on Form 6-K as a result of new information, future events or developments, except as expressly required by U.S. federal securities laws. You should read this Quarterly Report on Form 6-K and the documents that we reference and have furnished as exhibits with the understanding that we cannot guarantee future results, levels of activity, performance or achievements and that actual results may differ materially from what we expect.
In this Quarterly Report on Form 6-K, unless otherwise specified, all monetary amounts are in U.S. dollars. To the extent that any monetary amounts are not denominated in U.S. dollars, they have been translated into U.S. dollars in accordance with our accounting policies as described in Item 18, “Financial Statements” included in our 2022 Form 20-F.
3
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(All currency expressed in United States dollars in thousands, except share data)
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Assets |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Marketable securities |
|
|
|
|
|
|
||
Accounts receivable, net of allowance of $ |
|
|
|
|
|
|
||
Net investment in finance leases, net of allowance of $ |
|
|
|
|
|
|
||
Container leaseback financing receivable, net of allowance of $ |
|
|
|
|
|
|
||
Trading containers |
|
|
|
|
|
|
||
Containers held for sale |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
|
||
Due from affiliates, net |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
Restricted cash |
|
|
|
|
|
|
||
Containers, net of accumulated depreciation of $ |
|
|
|
|
|
|
||
Net investment in finance leases, net of allowance of $ |
|
|
|
|
|
|
||
Container leaseback financing receivable, net of allowance of $ |
|
|
|
|
|
|
||
Derivative instruments |
|
|
|
|
|
|
||
Deferred taxes |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities and Equity |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable and accrued expenses |
|
$ |
|
|
$ |
|
||
Container contracts payable |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
Due to container investors, net |
|
|
|
|
|
|
||
Debt, net of unamortized costs of $ |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
Debt, net of unamortized costs of $ |
|
|
|
|
|
|
||
Derivative instruments |
|
|
|
|
|
— |
|
|
Income tax payable |
|
|
|
|
|
|
||
Deferred taxes |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
Shareholders’ Equity: |
|
|
|
|
|
|
||
Cumulative redeemable perpetual preferred shares, $ |
|
|
|
|
|
|
||
Common shares, $ |
|
|
|
|
|
|
||
Treasury shares, at cost, |
|
|
( |
) |
|
|
( |
) |
Additional paid-in capital |
|
|
|
|
|
|
||
Accumulated other comprehensive income |
|
|
|
|
|
|
||
Retained earnings |
|
|
|
|
|
|
||
Total shareholders’ equity |
|
|
|
|
|
|
||
Total liabilities and shareholders’ equity |
|
$ |
|
|
$ |
|
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
4
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(All currency expressed in United States dollars in thousands, except per share amounts)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Revenues: |
|
|
|
|
|
|
||
Operating leases - owned fleet (1) |
|
$ |
|
|
$ |
|
||
Operating leases - managed fleet (1) |
|
|
|
|
|
|
||
Finance leases and container leaseback financing receivable - owned fleet (1) |
|
|
|
|
|
|
||
Total lease rental income |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Management fees - non-leasing |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Trading container sales proceeds |
|
|
|
|
|
|
||
Cost of trading containers sold |
|
|
( |
) |
|
|
( |
) |
Trading container margin |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
||
Gain on sale of owned fleet containers, net |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Operating expenses: |
|
|
|
|
|
|
||
Direct container expense - owned fleet |
|
|
|
|
|
|
||
Distribution expense to managed fleet container investors |
|
|
|
|
|
|
||
Depreciation and amortization (1) |
|
|
|
|
|
|
||
General and administrative expense |
|
|
|
|
|
|
||
Bad debt (recovery) expense, net |
|
|
( |
) |
|
|
|
|
Container lessee default expense, net |
|
|
|
|
|
|
||
Total operating expenses |
|
|
|
|
|
|
||
Income from operations |
|
|
|
|
|
|
||
Other (expense) income: |
|
|
|
|
|
|
||
Interest expense |
|
|
( |
) |
|
|
( |
) |
Other, net (1) |
|
|
|
|
|
( |
) |
|
Net other expense |
|
|
( |
) |
|
|
( |
) |
Income before income taxes |
|
|
|
|
|
|
||
Income tax expense |
|
|
( |
) |
|
|
( |
) |
Net income |
|
|
|
|
|
|
||
Less: Dividends on preferred shares |
|
|
|
|
|
|
||
Net income attributable to common shareholders |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Net income attributable to common shareholders per share: |
|
|
|
|
|
|
||
Basic |
|
$ |
|
|
$ |
|
||
Diluted |
|
$ |
|
|
$ |
|
||
Weighted average shares outstanding (in thousands): |
|
|
|
|
|
|
||
Basic |
|
|
|
|
|
|
||
Diluted |
|
|
|
|
|
|
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
5
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(All currency expressed in United States dollars in thousands)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Net income |
|
$ |
|
|
$ |
|
||
Other comprehensive income (loss), before tax: |
|
|
|
|
|
|
||
Change in derivative instruments designated as cash flow hedges |
|
|
( |
) |
|
|
|
|
Reclassification of realized (gain) loss on derivative instruments designated as |
|
|
( |
) |
|
|
|
|
Foreign currency translation adjustments |
|
|
|
|
|
( |
) |
|
Comprehensive income, before tax |
|
|
|
|
|
|
||
Income tax benefit (expense) related to items of other comprehensive income |
|
|
|
|
|
( |
) |
|
Comprehensive income, after tax |
|
|
|
|
|
|
||
Less: Dividends on preferred shares |
|
|
|
|
|
|
||
Comprehensive income attributable to common shareholders |
|
$ |
|
|
$ |
|
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
6
(Unaudited)
(All currency expressed in United States dollars in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
other |
|
|
|
|
|
Total |
|
||||||||||
|
|
Preferred shares |
|
|
Common shares |
|
|
Treasury shares |
|
|
paid-in |
|
|
comprehensive |
|
|
Retained |
|
|
shareholders’ |
|
|||||||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
capital |
|
|
income |
|
|
earnings |
|
|
equity |
|
||||||||||
Balances, December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Exercise of share options |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Purchase of treasury shares |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Share-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Preferred shares dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Dividends declared to common shareholders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Change in derivative instruments designated |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reclassification of realized loss on derivative |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Foreign currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Income tax expense related to items of other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Balances, March 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Balances, December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Exercise of share options |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Purchase of treasury shares |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Share-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Preferred shares dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Dividends declared to common shareholders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Change in derivative instruments designated |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Reclassification of realized gain on derivative |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Foreign currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Income tax benefit related to items of other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||||||||
Balances, March 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
7
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(All currency expressed in United States dollars in thousands)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization (1) |
|
|
|
|
|
|
||
Bad debt (recovery) expense, net |
|
|
( |
) |
|
|
|
|
Amortization of unamortized debt issuance costs and accretion of bond discounts |
|
|
|
|
|
|
||
Gain on sale of owned fleet containers, net |
|
|
( |
) |
|
|
( |
) |
Share-based compensation expense |
|
|
|
|
|
|
||
Changes in operating assets and liabilities (1) |
|
|
|
|
|
|
||
Total adjustments |
|
|
|
|
|
|
||
Net cash provided by operating activities |
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
|
||
Purchase of containers |
|
|
( |
) |
|
|
( |
) |
Payments on container leaseback financing receivable |
|
|
— |
|
|
|
( |
) |
Proceeds from sale of containers |
|
|
|
|
|
|
||
Receipt of principal payments on container leaseback financing receivable |
|
|
|
|
|
|
||
Other (1) |
|
|
|
|
|
( |
) |
|
Net cash provided by (used in) investing activities |
|
|
|
|
|
( |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
||
Proceeds from debt |
|
|
— |
|
|
|
|
|
Payments on debt |
|
|
( |
) |
|
|
( |
) |
Principal repayments on container leaseback financing liability, net |
|
|
( |
) |
|
|
( |
) |
Purchase of treasury shares |
|
|
( |
) |
|
|
( |
) |
Issuance of common shares upon exercise of share options |
|
|
|
|
|
|
||
Dividends paid on common shares |
|
|
( |
) |
|
|
( |
) |
Dividends paid on preferred shares |
|
|
( |
) |
|
|
( |
) |
Net cash (used in) provided by financing activities |
|
|
( |
) |
|
|
|
|
Effect of exchange rate changes |
|
|
|
|
|
( |
) |
|
Net change in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
Cash, cash equivalents and restricted cash, beginning of the year |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash, end of the period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Income taxes paid |
|
$ |
|
|
$ |
|
||
Receipt of payments on finance leases, net of income earned |
|
$ |
|
|
$ |
|
||
Supplemental disclosures of noncash investing activities: |
|
|
|
|
|
|
||
Decrease in accrued container purchases |
|
$ |
|
|
$ |
|
||
Containers placed in finance leases |
|
$ |
|
|
$ |
|
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
8
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(All currency expressed in United States dollars in thousands, except per share amounts)
Textainer Group Holdings Limited (“TGH”) is incorporated in Bermuda. TGH is the holding company of a group of companies, consisting of TGH and its subsidiaries (collectively, the “Company”), involved in the purchase, management, leasing and resale of a fleet of marine cargo containers. The Company also manages and provides administrative support to the third-party owners’ (the “Container Investors”) container fleets.
The Company conducts its business activities in
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. The accompanying unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2022 (“2022 Form 20-F”) filed with the Securities and Exchange Commission on February 14, 2023.
The condensed consolidated financial statements of the Company include TGH and all of its wholly-owned subsidiaries. All significant intercompany accounts and balances have been eliminated in consolidation.
The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities in the condensed financial statements. The Company’s management evaluates its estimates on an ongoing basis, including those related to container leasing equipment such as residual values and depreciable lives, containers held for sale, allowance for credit losses, income taxes and accruals. Actual results could differ from those estimates under different assumptions or conditions.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal and recurring adjustments) necessary to present fairly the Company’s condensed consolidated balance sheet as of March 31, 2023, the Company’s condensed consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for the three month periods ended March 31, 2023 and 2022. These condensed consolidated financial statements are not necessarily indicative of the results of operations or cash flows that may be reported for the remainder of the fiscal year ending December 31, 2023.
The Company’s customers are mainly international shipping lines, which transport goods on international trade routes. Once the containers are on-hire with a lessee, the Company does not track their location. The domicile of the lessee is not indicative of where the lessee is transporting the containers. The Company’s business risk in its geographic concentration lies with the creditworthiness of the lessees rather than the location of the containers or the domicile of the lessees.
Total lease rental income, as reported in the condensed consolidated statements of operations, comprises revenue earned from leases on containers in the Company’s total fleet, including revenue earned from leases on containers in its managed fleet.
|
|
Three Months Ended |
|
||
|
|
March 31 |
|
||
Total Lease Rental Income |
|
2023 |
|
2022 |
|
Customer A |
|
|
|
||
Customer B |
|
|
|
||
Customer C |
|
|
|
Other financial instruments that are exposed to concentrations of credit risk are cash and cash equivalents, restricted cash balances, and derivatives (see Note 8 “Debt and Derivative Instruments” for further discussions). The Company maintains cash and
9
cash equivalents and restricted cash accounts with various financial institutions, which often exceed Federal Deposit Insurance Corporation (FDIC) or foreign equivalents insurance limits. The Company has not experienced any losses in such accounts with these financial institutions. The Company does not anticipate any non-performance by the financial institutions or derivative counterparties as they are highly rated financial institutions.
Capitalized costs for container leasing equipment include the container cost payable to the manufacturer, inspection, delivery, and the associated transportation costs incurred in moving the Company’s containers from the manufacturer to the containers’ first destined location. Container leasing equipment are depreciated using the straight-line method over their estimated useful lives to an estimated residual value. Used containers are depreciated based upon their remaining useful lives at the date of acquisition to an estimated residual value. Repair and maintenance costs that do not extend the useful lives of the container leasing equipment are recognized in “direct container expense - owned fleet” in the condensed consolidated statements of operations at the time the costs are incurred.
Impairment of Container Leasing Equipment
The Company reviews its container leasing equipment for impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. The Company compares the carrying value of the container leasing equipment to the expected future undiscounted cash flows for the purpose of assessing the recoverability of the recorded amounts. If the carrying value exceeds expected future undiscounted cash flows, the assets are reduced to fair value. There was
Write-Off (Recoveries) of Container Leasing Equipment due to Lessees in Default
The Company evaluates the recoverability of the recorded amounts of container leasing equipment that are unlikely to be recovered from lessees in default. For the three months ended March 31, 2023 and 2022, there were
Containers identified as held for sale are valued at the lower of carrying value or fair value, less costs to sell. The Company records impairment to write-down the value of containers held for sale to their estimated fair value, less cost to sell, under observable (Level 2) market inputs. The fair value is estimated based on recent gross sales proceeds for sales of similar types of containers in the locations in which the containers are stored. When containers are sold or otherwise retired, the cost and related accumulated depreciation are removed, and any resulting gain or loss is recognized.
Subsequent additions or reductions to the fair values of these written down assets are recorded as adjustments to the carrying value of the containers held for sale. The carrying value of containers held for sale that have been impaired and written down to their estimated fair value less cost to sell was $
10
As of March 31, 2023 and December 31, 2022, the carrying amounts of cash and cash equivalents, restricted cash, accounts receivable and payable, due from affiliates, net, container contracts payable and due to container investors, net, approximate their fair values due to the short-term nature of these financial instruments. See Note 2 (d) “Containers Held for Sale”, Note 5 “Leases” and Note 8 “Debt and Derivative Instruments” for further discussions on fair value of containers held for sale, fair value of net investment in finance leases and container leaseback financing receivable, and fair value of derivative instruments, respectively.
As of March 31, 2023 and December 31, 2022, the Company held investments in marketable equity securities with readily determinable fair values of $
Certain prior period amounts for the three months ended March 31, 2022 have been reclassified to conform to the current period presentation. The reclassifications as discussed below have no effect on previously reported net income and net change in cash, cash equivalents, and restricted cash.
In March 2022, the FASB issued Accounting Standards Update No. 2022-02, Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”). The amendment eliminates the accounting guidance for troubled debt restructurings by creditors in Topic 310 - Receivables and amends the disclosure requirements for restructurings involving borrowers that are experiencing financial difficulty under ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, which was adopted by the Company on the effective date of January 1, 2020. ASU 2022-02 requires disclosure of current period gross write-offs by year of origination for financing receivables and net investment in finance leases and must be included in the vintage disclosure of the amortized cost basis of financing receivables and net investment in finance leases by credit quality indicator and by year of origination as required by ASU 2016-13. The Company adopted ASU 2022-02 effective January 1, 2023 on a prospective basis and the adoption of this guidance did not have an impact on the Company’s condensed consolidated financial statements.
There were no changes to the Company’s significant accounting policies during the three months ended March 31, 2023. For further discussion on the Company’s accounting policies, please refer to Note 1 “Nature of Business and Summary of Significant Accounting Polices” in Item 18, “Financial Statements” in our 2022 Form 20-F.
11
Under the Company’s management agreements for managed container fleet, the Company is responsible for providing the leasing services to the customers and responsible for directing and integrating third-party vendors to fulfill its performance obligations. Therefore, it was determined that the management agreements with these Container Investors are deemed to convey to the Company the right to control the use of the managed containers and are therefore accounted for as a lease.
Lease rental income and expenses from the managed fleet owned by Container Investors are reported on a gross basis. Lease rental income from managed fleet represents rental charges billed to the ultimate lessees for the managed fleet, including charges for handling fees, drop-off charges, pick-up charges, and charges for a damage protection plan that is set forth in the leases.
Management fees from non-leasing services are earned for acquiring new managed containers and sales commissions are earned from sales of the managed containers on behalf of the Container Investors.
Distribution expense to managed fleet container investors represents direct container expenses of the managed containers and the amounts distributed to the Container Investors, reduced by associated lease management fees earned and retained by the Company.
The Company is deemed to own certain of the managed containers purchased by the Company on behalf of Container Investors, notwithstanding the contractual management relationship which the Company has with the Container Investors. Accordingly, such managed containers are included in “containers, net” in the Company’s condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022. The purchase consideration paid by the Container Investors for such containers is reported as a deemed financial liability of the Company. As of March 31, 2023 and December 31, 2022, the Company’s container leaseback financial liability to the Container Investors amounted to $
The Company’s container leasing equipment includes such managed containers in the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022, which consisted of the following:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||||||||||
|
|
Cost |
|
|
Accumulated |
|
|
Net Book |
|
|
Cost |
|
|
Accumulated |
|
|
Net Book |
|
||||||
Containers - owned fleet |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Containers - managed fleet |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Total containers |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
Income from the managed fleet, including management fees earned from acquisition fees and sales commissions during the three months ended March 31, 2023 and 2022 were as follows:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Lease rental income - managed fleet |
|
$ |
|
|
$ |
|
||
Less: distribution expense to managed fleet container |
|
|
( |
) |
|
|
( |
) |
Less: depreciation and interest expense on managed |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Management fees from non-leasing services |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
12
The following table provides a reconciliation of the balance sheet accounts from the managed fleet to the total amount as of March 31, 2023 and December 31, 2022 in the condensed consolidated balance sheets (also, see Note 4 “Transactions with Affiliates and Container Investors”):
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Accounts receivable, net - owned fleet |
|
$ |
|
|
$ |
|
||
Accounts receivable, net - managed fleet |
|
|
|
|
|
|
||
Total accounts receivable, net |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Prepaid expenses and other current assets - owned fleet |
|
$ |
|
|
$ |
|
||
Prepaid expenses and other current assets - managed fleet |
|
|
|
|
|
|
||
Total prepaid expenses and other current assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Accounts payable and accrued expenses - owned fleet |
|
$ |
|
|
$ |
|
||
Accounts payable and accrued expenses - managed fleet |
|
|
|
|
|
|
||
Total accounts payable and accrued expenses |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Container contracts payable - owned fleet |
|
$ |
|
|
$ |
|
||
Total container contracts payable |
|
$ |
|
|
$ |
|
For further discussion on the Company’s managed container fleet, please refer to Item 18, “Financial Statements – Note 2” in our 2022 Form 20-F.
Due from affiliates, net of $
There were
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Accounts receivable, net - managed fleet |
|
$ |
|
|
$ |
|
||
Prepaid expenses and other current assets - managed fleet |
|
|
|
|
|
|
||
Accounts payable and accrued expenses - managed fleet |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Distributions due to container investors on lease rentals collected, net of |
|
|
|
|
|
|
||
Due to container investors, net |
|
$ |
|
|
$ |
|
13
The Company’s lease rental income for the three months ended March 31, 2023 and 2022 were as follows:
|
Three Months Ended March 31, |
|
|||||||||||||||||||||
|
2023 |
|
|
2022 |
|
||||||||||||||||||
|
Owned |
|
|
Managed |
|
|
Total |
|
|
Owned |
|
|
Managed |
|
|
Total |
|
||||||
- operating leases |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Interest income on net investment in finance leases |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Interest income on container leaseback financing |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Variable lease revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total lease rental income |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Variable lease revenue includes other charges set forth in the leases, such as handling fees, pick-up and drop-off charges and charges for damage protection plan.
For finance leases, the net selling gain (loss) recognized at lease commencement, representing the difference between the estimated fair value of containers placed on these leases and their net book value, in the amount of $(
Net Investment in Finance Leases
The following table represents the components of the net investment in finance leases as of March 31, 2023 and December 31, 2022:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Future minimum lease payments receivable |
|
$ |
|
|
$ |
|
||
Residual value of containers |
|
|
|
|
|
|
||
Less: unearned income |
|
|
( |
) |
|
|
( |
) |
Net investment in finance leases (1) |
|
|
|
|
|
|
||
Less: Allowance for credit losses |
|
|
( |
) |
|
|
( |
) |
Net investment in finance leases, net (2) |
|
$ |
|
|
$ |
|
||
Amounts due within one year |
|
|
|
|
|
|
||
Amounts due beyond one year |
|
|
|
|
|
|
||
Net investment in finance leases, net |
|
$ |
|
|
$ |
|
14
Container Leaseback Financing Receivable
The Company’s container leaseback financing receivable pertains to containers purchased that were leased back to the seller-lessees through a sales-type leaseback arrangement that are accounted for as financing transactions.
The following table represents the components of the container leaseback financing receivable as of March 31, 2023 and December 31, 2022:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Future minimum payments receivable |
|
$ |
|
|
$ |
|
||
Less: unearned income |
|
|
( |
) |
|
|
( |
) |
Container leaseback financing receivable (1) |
|
|
|
|
|
|
||
Less: Allowance for credit losses |
|
|
( |
) |
|
|
( |
) |
Container leaseback financing receivable, net (2) |
|
$ |
|
|
$ |
|
||
Amounts due within one year |
|
|
|
|
|
|
||
Amounts due beyond one year |
|
|
|
|
|
|
||
Container leaseback financing receivable, net |
|
$ |
|
|
$ |
|
Right-of-use (“ROU”) lease assets and lease liabilities are recognized for the Company’s office space leases at the commencement date based on the present value of lease payments over the lease term. As of March 31, 2023 and December 31, 2022, ROU amounted to $
The Company’s allowance for credit losses is estimated based on historical losses from lessee defaults, current economic conditions, reasonable and supportable forecasts and ongoing review of the credit worthiness, but not limited to, each lessee’s payment history, lessee credit ratings, management’s current assessment of each lessee’s financial condition and the recoverability.
Accounts Receivable
The allowance for credit losses included in accounts receivable, net, amounted to $
Net Investment in Finance Leases and Container Leaseback Financing Receivable
The allowance for credit losses related to unbilled amounts under finance leases and included in net investment in finance leases, net, amounted to $
As of March 31, 2023, the Company’s net investment in finance leases and container leaseback financing receivable are primarily comprised of the largest shipping lines under “Tier 1” risk rating which represented
15
The following table presents the net investment in finance leases and container leaseback financing receivable by internal credit rating category and year of origination as of March 31, 2023:
|
|
Three Months Ended March 31, 2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
Prior |
|
|
Total |
|
|||||||
Tier 1 |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Tier 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Tier 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net investment in finance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Tier 1 |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||||
Tier 2 |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Container leaseback financing |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
The Company’s effective income tax rates were
Debt
The following represents the Company’s debt obligations as of March 31, 2023 and December 31, 2022:
Secured Debt Facilities, Revolving Credit Facilities, Term Loan and Bonds Payable |
|
March 31, 2023 |
|
|
December 31, 2022 |
|
|
|
||||||||
|
|
Outstanding |
|
Average Interest |
|
|
Outstanding |
|
Average Interest |
|
|
Final Maturity |
||||
TL Revolving Credit Facility |
|
$ |
|
|
% |
|
$ |
|
|
% |
|
|||||
TL 2019 Term Loan |
|
|
|
|
% |
|
|
|
|
% |
|
|||||
TL 2021-1 Term loan |
|
|
|
|
% |
|
|
|
|
% |
|
|||||
TL 2021-2 Term Loan |
|
|
|
|
% |
|
|
|
|
% |
|
|||||
TMCL II Secured Debt Facility (1) |
|
|
|
|
% |
|
|
|
|
% |
|
|||||
TMCL VII 2020-1 Bonds |
|
|
|
|
% |
|
|
|
|
% |
|
|||||
TMCL VII 2020-2 Bonds |
|
|
|
|
% |
|
|
|
|
% |
|
|||||
TMCL VII 2020-3 Bonds |
|
|
|
|
% |
|
|
|
|
% |
|
|||||
TMCL VII 2021-1 Bonds |
|
|
|
|
% |
|
|
|
|
% |
|
|||||
TMCL VII 2021-2 Bonds |
|
|
|
|
% |
|
|
|
|
% |
|
|||||
TMCL VII 2021-3 Bonds |
|
|
|
|
% |
|
|
|
|
% |
|
|||||
Total debt obligations (2) |
|
$ |
|
|
|
|
$ |
|
|
|
|
|
||||
Unamortized debt premiums and discounts |
|
$ |
( |
) |
|
|
|
$ |
( |
) |
|
|
|
|
||
Debt, net of unamortized costs |
|
$ |
|
|
|
|
$ |
|
|
|
|
|
||||
Debt, net of unamortized costs - current |
|
$ |
|
|
|
|
$ |
|
|
|
|
|
||||
Debt, net of unamortized costs - non-current |
|
$ |
|
|
|
|
$ |
|
|
|
|
|
16
The Company hedges the risks associated with fluctuations in interest rates on a portion of its floating-rate debt by entering into interest rate swap agreements that convert a portion of its floating-rate debt to a fixed rate basis, thereby reducing the impact of interest rate changes on future interest expense.
|
Balance Outstanding |
|
Contractual Weighted Average Interest Rate |
|
Excluding impact of derivative instruments: |
|
|
|
|
Fixed-rate debt |
$ |
|
||
Floating-rate debt |
|
|
||
|
|
|
|
|
Including impact of derivative instruments: |
|
|
|
|
Fixed-rate debt |
|
|
||
Hedged floating-rate debt |
|
|
||
Total fixed and hedged debt |
|
|
||
Unhedged floating-rate debt |
|
|
||
Total |
$ |
|
The Company’s debt facilities are secured by specific pools of containers and related assets owned by the Company. The Company’s debt agreements contain various restrictive financial and other covenants related to leverage, interest coverage, fixed charge coverage, container sales proceeds ratio, net income and debt levels and consolidated tangible net worth, including limitations on certain liens, indebtedness and investments. TL’s revolving credit facility and term loans also contain limitation on loan and dividend payment to TGH. The Company was in full compliance with these restrictive covenants at March 31, 2023.
As of March 31, 2023, the Company’s total commitment and outstanding borrowing, excluding unamortized debt costs, for the debt facilities amounted to $
For further discussion on the Company’s debt instruments, please refer to Item 18, “Financial Statements – Note 7” in our 2022 Form 20-F.
Derivative Instruments and Hedging Activities
The Company has utilized the income approach to measure at each balance sheet date the fair value of its derivative instruments on a recurring basis using observable (Level 2) market inputs. The Company presents the fair value of derivative instruments, which are inclusive of counterparty risk, on a gross basis as separate line items on the condensed consolidated balance sheets. The Company monitors its counterparties’ credit ratings on an on-going basis and does not anticipate any non-performance by the counterparties as they are highly rated financial institutions. As of March 31, 2023 and December 31, 2022, all of the Company’s interest rate swap agreements were designated for hedge accounting purposes. The change in fair value of derivative instruments that are designated as cash flow hedge for accounting purposes are initially reported in the condensed consolidated balance sheets as a component of “accumulated other comprehensive income” and reclassified to earnings in “interest expense, net” when realized.
The following table summarizes the Company’s derivative instruments as of March 31, 2023:
|
|
Notional |
|
|
Derivative instruments |
|
amount |
|
|
Interest rate swap contracts with several banks that were indexed to daily SOFR, with fixed rates between - |
|
$ |
|
|
Total notional amount as of March 31, 2023 |
|
$ |
|
17
The following table summarizes the fair value of derivative instruments on the consolidated balance sheet as of March 31, 2023:
|
|
Fair Values of Derivative Instruments |
|
|
|
|
Assets (liabilities), net |
|
|
Balance at December 31, 2022 |
|
$ |
|
|
Change in derivative instruments designated as cash flow hedges |
|
|
( |
) |
Reclassification of realized gain on derivative instruments |
|
|
( |
) |
Balance at March 31, 2023 |
|
$ |
|
Over the next twelve months, the Company expects to reclassify an estimated net gain of $
|
|
|
|
Three Months Ended March 31, |
|
|
|||||
Derivative instruments |
|
Financial Statement Line Item |
|
2023 |
|
|
2022 |
|
|
||
Designated |
|
Other comprehensive (loss) income |
|
$ |
( |
) |
|
$ |
|
|
|
Designated |
|
Interest income (expense) |
|
$ |
|
|
$ |
|
|
For further discussion on the Company’s derivative instruments, please refer to Item 18, “Financial Statements – Note 8” in our 2022 Form 20-F.
18
The Company operates in
|
Container |
|
Container |
|
Container |
|
|
|
|
|
|
|
||||||
Three Months Ended March 31, 2023 |
Ownership |
|
Management |
|
Resale |
|
Other |
|
Eliminations |
|
Totals |
|
||||||
Total lease rental income |
$ |
|
$ |
|
$ |
— |
|
$ |
— |
|
$ |
|
$ |
|
||||
Management fees - non-leasing from |
$ |
— |
|
$ |
|
$ |
|
$ |
— |
|
$ |
— |
|
$ |
|
|||
Inter-segment management fees |
$ |
— |
|
$ |
|
$ |
|
$ |
— |
|
$ |
( |
) |
$ |
— |
|
||
Trading container margin |
$ |
— |
|
$ |
— |
|
$ |
( |
) |
$ |
— |
|
$ |
— |
|
$ |
( |
) |
Gain on sale of owned fleet containers, net |
$ |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
|
||
Depreciation |
$ |
|
$ |
|
$ |
— |
|
$ |
— |
|
$ |
( |
) |
$ |
|
|||
Container lessee default expense, net |
$ |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
|
||
Interest expense |
$ |
|
$ |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
|
|||
Segment income (loss) before income taxes |
$ |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
|
$ |
|
|||||
Income tax (expense) benefit |
$ |
( |
) |
$ |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
( |
) |
|
Total assets |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
|
|||||
Purchase of containers and fixed assets |
$ |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
|
|
Container |
|
Container |
|
Container |
|
|
|
|
|
|
|
||||||
Three Months Ended March 31, 2022 |
Ownership |
|
Management |
|
Resale |
|
Other |
|
Eliminations |
|
Totals |
|
||||||
Total lease rental income |
$ |
|
$ |
|
$ |
— |
|
$ |
— |
|
$ |
|
$ |
|
||||
Management fees - non-leasing from external |
$ |
— |
|
$ |
|
$ |
|
$ |
— |
|
$ |
— |
|
$ |
|
|||
Inter-segment management fees |
$ |
— |
|
$ |
|
$ |
|
$ |
— |
|
$ |
( |
) |
$ |
— |
|
||
Trading container margin |
$ |
— |
|
$ |
— |
|
$ |
|
$ |
— |
|
$ |
— |
|
$ |
|
||
Gain on sale of owned fleet containers, net |
$ |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
|
||
Depreciation and amortization |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
|
|||||
Container lessee default expense, net |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||
Interest expense |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||
Segment income (loss) before income tax |
$ |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
|
||||
Income tax expense |
$ |
|
$ |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
|
|||
Total assets |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
|
|||||
Purchase of containers and fixed assets |
$ |
|
$ |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
|
|||
Payments on container leaseback financing |
$ |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
|
General and administrative expenses are allocated to the reportable business segments based on direct overhead costs incurred by those segments. Amounts reported in the “Other” column represent activity unrelated to the active reportable business segments. Amounts reported in the “Eliminations” column represent inter-segment management fees between the Container Management and Container Resale segments and the Container Ownership segment.
Geographic Segment Information
Substantially all of the Company’s leasing related revenue is denominated in U.S. dollars. As all of the Company’s containers are used internationally, where no single container is domiciled in one particular place for a prolonged period of time, all of the Company’s long-lived assets are considered to be international with no single country of use.
19
The following table represents the geographic allocation of total fleet lease rental income and management fees from non-leasing services during the three months ended March 31, 2023 and 2022 based on customers’ and Container Investors’ primary domicile, respectively:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Total lease rental income: |
|
|
|
|
|
|
||
Europe |
|
$ |
|
|
$ |
|
||
Asia |
|
|
|
|
|
|
||
North / South America |
|
|
|
|
|
|
||
Bermuda |
|
|
— |
|
|
|
— |
|
All other international |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Management fees, non-leasing: |
|
|
|
|
|
|
||
Europe |
|
$ |
|
|
$ |
|
||
Bermuda |
|
|
|
|
|
|
||
North / South America |
|
|
|
|
|
|
||
Asia |
|
|
— |
|
|
|
— |
|
All other international |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
The following table represents the geographic allocation of trading container sales proceeds and gain on sale of owned fleet containers, net during the three months ended March 31, 2023 and 2022 based on the location of sale:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2021 |
|
||
Trading container sales proceeds: |
|
|
|
|
|
|
||
North / South America |
|
$ |
|
|
$ |
|
||
Asia |
|
|
|
|
|
|
||
Europe |
|
|
|
|
|
|
||
Bermuda |
|
|
— |
|
|
|
— |
|
All other international |
|
|
— |
|
|
|
— |
|
|
|
$ |
|
|
$ |
|
||
Gain on sale of owned fleet containers, net: |
|
|
|
|
|
|
||
Asia |
|
$ |
|
|
$ |
|
||
North / South America |
|
|
|
|
|
|
||
Europe |
|
|
|
|
|
|
||
Bermuda |
|
|
— |
|
|
|
— |
|
All other international |
|
|
— |
|
|
|
— |
|
|
|
$ |
|
|
$ |
|
Restricted interest-bearing cash accounts were established by the Company as additional collateral for outstanding borrowings under certain of the Company’s debt facilities. The total balance of these restricted cash accounts was $
At March 31, 2023, the Company had commitments to purchase containers to be delivered subsequent to March 31, 2023 in the total amount of $
20
The Company is the subject of, or party to, pending or threatened legal proceedings arising in the ordinary course of its business. Based upon information presently available, the Company does not expect any liability arising from these matters to have a material effect on the Company’s consolidated financial condition, results of operations or cash flows.
The amounts distributed to the Container Investors are variable payments based upon the net operating income for each managed container (see Note 3 “Managed Container Fleet”). There are
Share Repurchase Program
In 2019, the Company’s board of directors approved a share repurchase program to repurchase up to $
During the three months ended March 31, 2023, the Company repurchased
Preferred Shares
The following table summarizes the Company’s preferred share issuances (the “Series”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Preferred Share Offering |
|
Date of Issuance |
|
Number of Depositary Shares Issued and Outstanding (1) |
|
|
Liquidation Preference |
|
|
Underwriting Discounts |
|
|
Net Proceeds |
|
||||
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
21
There is no mandatory redemption of each Series of preferred shares or redemption at the option of the holders. Holders of the preferred shares do not have general voting rights.
Preferred Share Dividends
Dividends on each Series of preferred shares accrue daily and are cumulative from and including the date of original issuance and are payable quarterly in arrears on the 15th day of March, June, September and December of each year, when declared by the Company’s board of directors. Dividends accrue at the stated annual rate of the $
The Company’s board of directors approved and declared the following quarterly preferred cash dividends during the three months ended March 31, 2023 and 2022 on its issued and outstanding preferred shares:
|
|
Three Months Ended March 31, |
|
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
|
||||||||||
Preferred Share Offering |
|
Aggregate Payment |
|
|
Per Depositary Share Payment (1) |
|
|
Aggregate Payment |
|
|
Per Depositary Share Payment (1) |
|
|
||||
Series A |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||
Series B |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||
Total |
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
As of March 31, 2023, the Company had cumulative undeclared and unpaid preferred dividends of $
Common Share Dividends
The Company’s board of directors approved and declared the following cash dividends during the three months ended March 31, 2023 and 2022 on its issued and outstanding common shares:
|
|
Three Months Ended March 31, |
|
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
|
||||||||||
|
|
Aggregate Payment |
|
|
Per Share Payment |
|
|
Aggregate Payment |
|
|
Per Share Payment |
|
|
||||
Common share dividends |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
22
Basic earnings per share (“EPS”) is computed by dividing net income attributable to common shareholders by the weighted average number of shares outstanding during the applicable period. Diluted EPS reflects the potential dilution that could occur if all outstanding share options were exercised for, and all outstanding restricted share units (“RSU”) and performance restricted share units (“PSU”) were converted into, common shares.
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
Share amounts in thousands |
|
2023 |
|
|
2022 |
|
||
Numerator: |
|
|
|
|
|
|
||
Net income attributable to common shareholders |
|
$ |
|
|
$ |
|
||
Denominator: |
|
|
|
|
|
|
||
Weighted average common shares outstanding - basic |
|
|
|
|
|
|
||
Dilutive share options, RSU and PSU |
|
|
|
|
|
|
||
Weighted average common shares outstanding - diluted |
|
|
|
|
|
|
||
Net income attributable to common shareholders per common share: |
|
|
|
|
|
|
||
Basic |
|
$ |
|
|
$ |
|
||
Diluted |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Share options, RSU and PSU excluded from the computation of |
|
|
|
|
|
|
In April 2023, the Company’s board of directors approved and declared a quarterly preferred cash dividend on its issued and outstanding preferred shares, payable on June 15, 2023 to holders of record as of June 2, 2023. The dividend declared on Series A Preferred Shares and Series B Preferred Shares were $
In April 2023, the Company’s board of directors approved and declared a cash dividend of $
23
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in Item 1, “Condensed Consolidated Financial Statements (Unaudited)” of this Quarterly Report on Form 6-K, as well as our audited consolidated financial statements and notes thereto included in our Annual Report on Form 20-F for the fiscal year ended December 31, 2022 filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 14, 2023 (our “2022 Form 20-F”). In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those contained in or implied by any forward-looking statements. See “Information Regarding Forward-Looking Statements; Cautionary Language.” Factors that could cause or contribute to these differences include those discussed below, the additional risk factor as set forth in Item 4, “Risk Factors” of this Quarterly Report on Form 6-K and Item 3, “Key Information -- Risk Factors” included in our 2022 Form 20-F.
As used in the following discussion and analysis, unless indicated otherwise or the context otherwise requires, references to: (1) “the Company,” “we,” “us,” “our” or “TGH” refer collectively to Textainer Group Holdings Limited, the issuer of the publicly-traded common shares that have been registered pursuant to Section 12(b) of the U.S. Securities Exchange Act of 1934, as amended, and its subsidiaries; (2) “TEU” refers to a “Twenty-Foot Equivalent Unit,” which is a unit of measurement used in the container shipping industry to compare shipping containers of various lengths to a standard 20’ dry freight container, thus a 20’ container is one TEU and a 40’ container is two TEU; (3) “CEU” refers to a Cost Equivalent Unit, which is a unit of measurement based on the approximate cost of a container relative to the cost of a standard 20’ dry freight container, so the cost of a standard 20’ dry freight container is one CEU; the cost of a 40’ dry freight container is 1.6 CEU; and the cost of a 40’ high cube dry freight container (9’6” high) is 1.7 CEU; and the cost of a 40’ high cube refrigerated container is 8.0 CEU; (4) “our owned fleet” means the containers we own; (5) “our managed fleet” means the containers we manage that are owned by other container investors; (6) “our fleet” and our” total fleet” means our owned fleet plus our managed fleet plus any containers we lease from other lessors; and (7) “container investors” means the owners of the containers in our managed fleet.
Dollar amounts in this section of this Quarterly Report on Form 6-K are expressed in thousands. Per container amounts are in dollars.
Overview
We are one of the world’s largest lessors of intermodal containers based on fleet size, with a total fleet of approximately 2.7 million containers, representing 4.4 million TEU. Containers are an integral component of intermodal trade, providing a secure and cost-effective method of transportation because they can be used to transport freight by ship, rail or truck, making it possible to move cargo from point of origin to final destination without repeated unpacking and repacking.
We lease containers to approximately 200 shipping lines and other lessees, including all of the world’s leading international shipping lines. We believe that our scale, global presence, customer service, market knowledge and long history with our customers have made us one of the most reliable suppliers of leased containers. We have a long track record in the industry, operating since 1979, and have developed long-standing relationships with key industry participants. Our top 20 customers, as measured by revenues, have on average been our customer for 30 years.
We provide our services worldwide via an international network of 14 regional and area offices and approximately 400 independent depots.
We operate our business in three core segments:
24
Key Operating Metrics
Our total revenues primarily consist of leasing revenues derived from the lease of owned and managed containers. The most important driver of our profitability is the extent to which our leasing revenues exceed our operating costs. The key drivers of our leasing revenues are fleet size, lease rates, and utilization. Our operating costs primarily consist of depreciation, direct costs related to the operations of our owned and managed fleet, and interest expense. Our lessees are generally responsible for loss of or damage to a container beyond ordinary wear and tear, and they are required to purchase insurance to cover any other liabilities. Our profitability is also driven by the gains or losses we realize on the sale of our containers.
Fleet Size. Our total fleet consists of containers that we own, and containers owned by other container investors that we manage. As of March 31, 2023 and December 31, 2022, our total fleet in TEU was 4,375,474 and 4,425,300, respectively. We have currently limited our investment in new containers due to subdued container demand in 2022 and early 2023 following the prior historic container production in 2021. During the three months ended March 31, 2023, we purchased approximately $2.9 million of containers for our fleet. The table below summarizes the composition of our owned and managed fleets, in TEU and CEU, by type of containers, as of March 31, 2023:
|
|
Total Fleet in TEU |
|
|
Total Fleet in CEU |
|
||||||||||||||||||
|
|
Owned |
|
|
Managed |
|
|
Total |
|
|
Owned |
|
|
Managed |
|
|
Total |
|
||||||
Standard dry freight |
|
|
3,859,142 |
|
|
|
263,820 |
|
|
|
4,122,962 |
|
|
|
3,407,797 |
|
|
|
234,085 |
|
|
|
3,641,882 |
|
Refrigerated |
|
|
192,399 |
|
|
|
6,608 |
|
|
|
199,007 |
|
|
|
772,933 |
|
|
|
26,618 |
|
|
|
799,551 |
|
Other specialized |
|
|
48,111 |
|
|
|
5,394 |
|
|
|
53,505 |
|
|
|
73,870 |
|
|
|
7,720 |
|
|
|
81,590 |
|
Total fleet |
|
|
4,099,652 |
|
|
|
275,822 |
|
|
|
4,375,474 |
|
|
|
4,254,600 |
|
|
|
268,423 |
|
|
|
4,523,023 |
|
Percent of total fleet |
|
93.7% |
|
|
6.3% |
|
|
100.0% |
|
|
94.1% |
|
|
5.9% |
|
|
100.0% |
|
Lease Rates and Composition. We generate lease rental income by leasing our owned container fleet and managed container fleet to container shipping lines and other customers. Average lease rates of our containers on operating leases slightly increased by 0.3% for the three months ended March 31, 2023 compared to the three months ended March 31, 2022, as new container prices and market leasing rates returned to normal levels reflecting the moderated market environment. Our finance lease income increased for the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily due to growth of our fleet on finance leases by approximately 3.3% (as a percentage of our total fleet in TEU on hire during the period) which was driven by the strong demand of containers. Our total fleet as of March 31, 2023, by lease type, as a percentage of total TEU and CEU on hire was as follows:
|
|
|
|
|
|
|
Percent of Total On-Hire Fleet |
||
|
|
TEU |
|
CEU |
Term leases (included units on-hire under expired term leases) |
|
70.1% |
|
70.7% |
Finance leases |
|
27.7% |
|
26.9% |
Master leases |
|
1.4% |
|
1.7% |
Spot leases |
|
0.8% |
|
0.7% |
Total |
|
100.0% |
|
100.0% |
Utilization. We measure the utilization rate on the basis of CEU on lease, using the actual number of days on hire, expressed as a percentage of CEU available for lease, using the actual days available for lease. CEU available for lease excludes CEU that have been manufactured but have not yet been delivered to a lessee and CEU designated as held-for-sale units. Our average utilization during the three months ended March 31, 2023 decreased compared to the three months ended March 31, 2022 due to increased drop-off volumes and decreased pick-up volumes as trade activity slowed. The following table summarizes our average total fleet utilization (CEU basis) for the three months ended March 31, 2023 and 2022:
|
|
Three Months Ended |
||
|
|
March 31, |
||
|
|
2023 |
|
2022 |
Average Utilization |
|
98.8% |
|
99.7% |
Market Overview
25
The container shipping market and hence the demand for leased containers, is mainly driven by the rate of growth of global trade and changes in per capita income as these influences worldwide consumption. The COVID-19 pandemic increased global container trade volumes and leasing demand due to high demand for consumer goods and prolonged supply chain congestions. We have strongly benefited from the increased global containerized trade disruptions that have emerged since the second half of 2020 and throughout 2022 and had invested heavily in new containers in response to strong container demand, which has been subdued starting in the second half of 2022 following the prior historic container production in 2021. The container leasing market is beginning to normalize during 2023 as the pandemic and supply chain disruptions have stabilized, resulting in moderated container prices and decreased container utilization, which remain elevated compared to historic levels. Container drop-offs, comprising of primarily sales-age containers and which had been subdued, started to increase in line with the reduced global shipping congestion.
While our liquidity and financial performance remained strong, current market conditions during the first quarter of 2023 resulted in a lower container demand environment. Global geopolitical stress from factors including the ongoing Russia-Ukraine war, as well as inflation due to higher energy prices and increased consumer demand and monetary policy during the pandemic, have led to fears of recession. Additionally, the market volatility from recent bank failures, increased U.S. interest rates and the resulting stronger U.S. Dollar have contributed to global economic stress, which has at least partially contributed to risk of slowdown in market trade volumes. While uncertainty and global macroeconomic concerns remain, the market growth outlook appears to be improving with greater than expected resilience in Europe and North America, easing of inflationary pressure and the anticipated recovery in China now that pandemic restrictions have been lifted. As we look out to the coming months, we see a continuation of this uncertainty with a likely reduction from our extremely high gain on container sales of our owned fleet during the past two years, but we remain optimistic for 2023 as we enter the year with recession fears easing away and we expect stabilizing financial performance due to our long-term lease contracts and fixed rate financing policy. For additional information regarding the risk and uncertainties that we could encounter as a result of the COVID-19 pandemic, the Russia-Ukraine war and related global conditions, see Item 4, “Risk Factors” and Item 3, “Key Information - Risk Factors” included in our 2022 Form 20-F.
Key Factors Affecting Our Performance
We believe there are a number of key factors that have affected, and are likely to continue to affect, our operating performance. These key factors include the following, among others:
For further details regarding these and other factors that may affect our business and results of operations, see Item 3, “Key Information -- Risk Factors” included in our 2022 Form 20-F.
26
Results of Operations
Comparison of the Three Months Ended March 31, 2023 and 2022
The following table summarizes our total revenues for the three months ended March 31, 2023 and 2022:
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
March 31, |
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
Variance |
|
|||
|
|
(Dollars in thousands) |
|
|
|
|
||||||
Operating leases - owned fleet |
|
$ |
145,324 |
|
|
$ |
151,492 |
|
|
$ |
(6,168 |
) |
Operating leases - managed fleet |
|
|
11,110 |
|
|
|
12,641 |
|
|
|
(1,531 |
) |
Finance leases and container leaseback |
|
|
38,467 |
|
|
|
34,585 |
|
|
|
3,882 |
|
Total lease rental income |
|
$ |
194,901 |
|
|
$ |
198,718 |
|
|
$ |
(3,817 |
) |
|
|
|
|
|
|
|
|
|
|
|||
Management fees - non-leasing |
|
$ |
744 |
|
|
$ |
532 |
|
|
$ |
212 |
|
|
|
|
|
|
|
|
|
|
|
|||
Trading container sales proceeds |
|
$ |
3,966 |
|
|
|
7,618 |
|
|
$ |
(3,652 |
) |
Cost of trading containers sold |
|
|
(4,121 |
) |
|
|
(6,756 |
) |
|
|
2,635 |
|
Trading container margin |
|
$ |
(155 |
) |
|
$ |
862 |
|
|
$ |
(1,017 |
) |
|
|
|
|
|
|
|
|
|
|
|||
Gain on sale of owned fleet containers, net |
|
$ |
9,548 |
|
|
$ |
15,913 |
|
|
$ |
(6,365 |
) |
Total lease rental income for the three months ended March 31, 2023 decreased $3,817 compared to the three months ended March 31, 2022, primarily due to $7,847 decrease arising from a reduction in our total operating fleet that was available for lease and $1,867 decrease due to lower utilization, partially offset by $3,886 increase due to the growth of our fleet on finance leases and a $1,919 increase on ancillary lease revenues due to higher drop-off activity on lower utilization.
Trading container margin for the three months ended March 31, 2023 decreased $1,017 compared to the three months ended March 31, 2022, primarily due to $1,033 decrease resulting from a reduction in per unit margin.
Gain on sale of owned fleet containers, net for the three months ended March 31, 2023 decreased $6,365 compared to the three months ended March 31, 2022, primarily due to $27,348 decrease resulting from a reduction in average gain per container sold due to a decrease in container selling prices, partially offset by a $21,129 increase resulting from an increase in the number of containers being sold.
The following table summarizes our total operating expenses for the three months ended March 31, 2023 and 2022:
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
March 31, |
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
Variance |
|
|||
|
|
(Dollars in thousands) |
|
|
|
|
||||||
Direct container expense - owned fleet |
|
$ |
10,043 |
|
|
$ |
5,519 |
|
|
$ |
4,524 |
|
Distribution expense to managed fleet |
|
|
9,925 |
|
|
|
11,173 |
|
|
|
(1,248 |
) |
Depreciation and amortization |
|
|
71,838 |
|
|
|
72,493 |
|
|
|
(655 |
) |
General and administrative expense |
|
|
13,119 |
|
|
|
11,527 |
|
|
|
1,592 |
|
Bad debt (recovery) expense, net |
|
|
(305 |
) |
|
|
477 |
|
|
|
(782 |
) |
Container lessee default expense, net |
|
|
39 |
|
|
|
120 |
|
|
|
(81 |
) |
Total operating expenses |
|
$ |
104,659 |
|
|
$ |
101,309 |
|
|
$ |
3,350 |
|
Direct container expense – owned fleet for the three months ended March 31, 2023 increased $4,524 compared to the three months ended March 31, 2022, primarily due to a $2,585 increase in storage expense and a $1,302 increase in maintenance and handling expense, which resulted from increased turn-in of containers.
27
Distribution expense to managed fleet container investors for the three months ended March 31, 2023 decreased $1,248 compared to the three months ended March 31, 2022, primarily due to a decrease in lease rental income of the managed fleet resulting from a reduction in the managed fleet size.
Depreciation and amortization for the three months ended March 31, 2023 decreased $655 compared to the three months ended March 31, 2022, primarily due to $2,001 decrease due to a net reduction in the size of our owned depreciable fleet, partially offset by a $1,395 net increase in writing down the value of containers held for sale to their estimated fair value less cost to sell.
General and administrative expense for the three months ended March 31, 2023 increased $1,592 compared to the three months ended March 31, 2022, primarily due to a $1,238 increase in compensation and benefit costs.
Bad debt (recovery) expense, net for the three months ended March 31, 2023 amounted to a recovery of $305 compared to an expense of $477 for the three months ended March 31, 2022. The changes were primarily due to an update in the estimates for credit loss reserve on our net investment in finance leases and container leaseback financing receivable.
The following table summarizes other (expense) income and income tax expense for the three months ended March 31, 2023 and 2022:
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
March 31, |
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
Variance |
|
|||
|
|
(Dollars in thousands) |
|
|
|
|
||||||
Interest expense |
|
$ |
(42,130 |
) |
|
$ |
(35,309 |
) |
|
$ |
(6,821 |
) |
Other, net |
|
|
1,822 |
|
|
|
(94 |
) |
|
|
1,916 |
|
Net other expense |
|
$ |
(40,308 |
) |
|
$ |
(35,403 |
) |
|
$ |
(4,905 |
) |
|
|
|
|
|
|
|
|
|
|
|||
Income tax expense |
|
$ |
(1,476 |
) |
|
$ |
(1,639 |
) |
|
|
163 |
|
Interest expense for the three months ended March 31, 2023 increased $6,821 compared to the three months ended March 31, 2022, $7,523 of the increase resulted from an increase in average interest rates of 0.56 percentage points, partially offset by a $702 decrease resulting from a decrease in the average debt balance of $110,611.
Other, net for the three months ended March 31, 2023 increased $1,916 compared to the three months ended March 31, 2022, primarily due to $2,046 increase resulting from an increase in interest income predominantly due to an increase in average interest rates, partially offset by a $351 decrease related to the remeasurement at each period end of the cash balances that are denominated in currencies other than our functional currency.
Segment Information
The following table summarizes our income before taxes attributable to each of our business segments for the three months ended March 31, 2023 and 2022 (before inter-segment eliminations):
|
Three Months Ended |
|
|
|
|||||
|
March 31, |
|
|
|
|||||
|
2023 |
|
2022 |
|
Variance |
|
|||
|
(Dollars in thousands) |
|
|
|
|||||
Container ownership |
$ |
50,320 |
|
$ |
67,213 |
|
$ |
(16,893 |
) |
Container management |
|
5,653 |
|
|
13,793 |
|
|
(8,140 |
) |
Container resale |
|
3,405 |
|
|
3,007 |
|
|
398 |
|
Other |
|
(1,899 |
) |
|
(1,023 |
) |
|
(876 |
) |
Eliminations |
|
2,592 |
|
|
(3,677 |
) |
|
6,269 |
|
Income before income taxes |
$ |
60,071 |
|
$ |
79,313 |
|
$ |
(19,242 |
) |
28
Income before income taxes attributable to the Container Ownership segment for the three months ended March 31, 2023 decreased $16,893 compared to the three months ended March 31, 2022. The following table summarizes the variances included within this decrease:
Increase in interest income |
$ |
1,315 |
|
Decrease in depreciation expense |
|
724 |
|
Change from bad debt expense, net to bad debt recovery, net |
|
586 |
|
Increase in interest expense |
|
(6,831 |
) |
Decrease in gain on sale of owned fleet containers, net |
|
(6,365 |
) |
Increase in direct container expense |
|
(3,809 |
) |
Decrease in lease rental income - owned fleet |
|
(2,496 |
) |
Other |
|
(17 |
) |
|
$ |
(16,893 |
) |
Income before income taxes attributable to the Container Management segment for the three months ended March 31, 2023 decreased $8,140 compared to the three months ended March 31, 2022. The following table summarizes the variances included within this decrease:
Decrease in distribution expense to managed fleet container investors |
$ |
1,248 |
|
Increase in interest income |
|
724 |
|
Decrease in management fees |
|
(7,950 |
) |
Decrease in lease rental income - managed fleet |
|
(1,531 |
) |
Increase in general and administrative expense |
|
(884 |
) |
Other |
|
253 |
|
|
$ |
(8,140 |
) |
Income before income taxes attributable to the Container Resale segment for the three months ended March 31, 2023 increased $398 compared to the three months ended March 31, 2022, primarily due to an increase in management fees, partially offset by a decrease in trading container margin.
Loss before income taxes attributable to Other activities unrelated to our reportable business segments for the three months ended March 31, 2023 increased $876 compared to the three months ended March 31, 2022, primarily due to increases in general and administrative expense and foreign currency exchange loss.
Segment eliminations changed from a net loss of $3,677 for the three months ended March 31, 2022 to a net income of $2,592 for the three months ended March 31, 2023. This change consisted of a $6,190 decrease in acquisition fees received by our Container Management segment from our Container Ownership segment and a $79 increase in amortization related to capitalized acquisition fees received by our Container Management segment from our Container Ownership segment. Our Container Ownership segment capitalizes acquisition fees billed by our Container Management segment as part of containers, net and records lease rental income and depreciation expense to amortize the acquisition fees over the lease terms and useful lives of the containers, respectively, which are eliminated in consolidation.
Currency
Almost all of our revenues are denominated in U.S. dollars, and our direct container expenses and operating expenses were substantially denominated in U.S. dollars. See the risk factor entitled “Because substantially all of our revenues are generated in U.S. dollars, but a significant portion of our expenses are incurred in other currencies, exchange rate fluctuations could have an adverse impact on our results of operations” under Item 3, “Key Information—Risk Factors” included in our 2022 Form 20-F. Our operations in non-U.S. dollar locations have some exposure to foreign currency fluctuations, and trade growth and the direction of trade flows can be influenced by large changes in relative currency values. Foreign exchange fluctuations did not materially impact our financial results for the three months ended March 31, 2023. We do not engage in currency hedging.
29
Liquidity and Capital Resources
As of March 31, 2023, we had cash and cash equivalents (including restricted cash) of $244,609. For the three months ended March 31, 2023, cash provided by operating activities, together with the proceeds from container leaseback financing receivable and proceeds from sale of containers, was $207,305. In addition, we had $878,701 of maximum borrowing capacity remaining under our debt facilities as of March 31, 2023. Our principal sources of liquidity have been our cash flows from operations including the sale of containers and borrowings under debt facilities. Our cash inflows from operations are affected by the utilization rate of our fleet and the per diem rates of our leases, whereas the cash inflows from proceeds for the sale of containers are affected by market demand for used containers and our available inventory of containers for sale. Our cash outflows are affected by payments and expenses primarily related to our purchasing of containers, required principal and interest payments on our debt obligations, and any dividends and common share repurchases.
The global banking market has recently experienced increased volatility as a result of several highly publicized distressed or closed banks, the most significant of these being Silicon Valley Bank and First Republic Bank. The Company has no cash and cash equivalents and restricted cash deposited with these banks and we have not realized any losses as a result of this increased market volatility. Although we do not hold accounts in these banks, any future adverse developments with respect to specific financial institutions or the broader financial services industry may cause liquidity shortages, impair the ability of companies to access near-term working capital needs, and create market and economic uncertainty. Assuming that our lenders remain solvent, and lessees meet their lease payment obligations, we currently believe that our existing cash and cash equivalents, cash flows generated from operations, proceeds from the sale of containers and borrowing availability under our debt facilities are sufficient to meet our working capital needs and other capital and liquidity requirements for the next twelve months.
Capital Expenditures and Commitments
As of March 31, 2023, we had container contracts payable to manufacturers of $1,817. During the three months ended March 31, 2023, we paid $7,775 for containers, including for containers under leaseback financing receivable, and we have $12,140 of total purchase commitments for future container investments for delivery subsequent to March 31, 2023.
As of March 31, 2023, we had $9,361 of future payment obligations related to our office operating leases, of which $2,350 is due within the next twelve months.
As of March 31, 2023, we had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, change in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Dividends
During the three months ended March 31, 2023, we paid $4,969 of cash dividends to our preferred shareholders. As of March 31, 2023, we have cumulative undeclared and unpaid preferred dividends of $854.
During the three months ended March 31, 2023, our board of directors declared a $0.30 cash dividend per common share for a total aggregate amount of $12,865 to our common shareholders.
Share Repurchase Program
Since the inception of the program in 2019, we repurchased an aggregate total of $370,061 under our share repurchase program, of which $41,659 were repurchased during the three months ended March 31, 2023.
Description of Indebtedness
As of March 31, 2023, the total outstanding principal balance on our debt facilities was $5,376,765, of which $401,968 is due within the next twelve months. Final maturities on these debt facilities occur between December 2026 and August 2046.
As of March 31, 2023, our estimated future aggregate interest payments on debt obligations amounted to $986,488 (including amounts due within the next twelve months of $225,595), and our estimated future aggregate interest receivable on interest rate swaps amounted to $133,853 (including amounts receivable within the next twelve months of $64,884).
30
As of March 31, 2023, we had the following outstanding borrowings and borrowing capacities per debt facility (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available |
|
|
|
|
||||||
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
Borrowing, as |
|
|
Current and |
|
||||||
|
|
Current |
|
|
Borrowing |
|
|
Total |
|
|
|
Current |
|
|
Limited by the |
|
|
Available |
|
||||||
Facility: |
|
Borrowing |
|
|
Commitment |
|
|
Commitment |
|
|
|
Borrowing |
|
|
Borrowing Base |
|
|
Borrowing |
|
||||||
TL Revolving Credit Facility |
|
$ |
1,287,858 |
|
|
$ |
612,142 |
|
|
$ |
1,900,000 |
|
|
|
$ |
1,287,858 |
|
|
$ |
326,939 |
|
|
$ |
1,614,797 |
|
TL 2019 Term Loan |
|
|
124,410 |
|
|
|
— |
|
|
|
124,410 |
|
|
|
|
124,410 |
|
|
|
— |
|
|
|
124,410 |
|
TL 2021-1 Term loan |
|
|
58,920 |
|
|
|
— |
|
|
|
58,920 |
|
|
|
|
58,920 |
|
|
|
— |
|
|
|
58,920 |
|
TL 2021-2 Term Loan |
|
|
188,526 |
|
|
|
— |
|
|
|
188,526 |
|
|
|
|
188,526 |
|
|
|
— |
|
|
|
188,526 |
|
TMCL II Secured Debt Facility (1) |
|
|
1,233,441 |
|
|
|
266,559 |
|
|
|
1,500,000 |
|
|
|
|
1,233,441 |
|
|
|
12,683 |
|
|
|
1,246,124 |
|
TMCL VII 2020-1 Bonds |
|
|
319,131 |
|
|
|
— |
|
|
|
319,131 |
|
|
|
|
319,131 |
|
|
|
— |
|
|
|
319,131 |
|
TMCL VII 2020-2 Bonds |
|
|
461,494 |
|
|
|
— |
|
|
|
461,494 |
|
|
|
|
461,494 |
|
|
|
— |
|
|
|
461,494 |
|
TMCL VII 2020-3 Bonds |
|
|
170,722 |
|
|
|
— |
|
|
|
170,722 |
|
|
|
|
170,722 |
|
|
|
— |
|
|
|
170,722 |
|
TMCL VII 2021-1 Bonds |
|
|
456,914 |
|
|
|
— |
|
|
|
456,914 |
|
|
|
|
456,914 |
|
|
|
— |
|
|
|
456,914 |
|
TMCL VII 2021-2 Bonds |
|
|
551,349 |
|
|
|
— |
|
|
|
551,349 |
|
|
|
|
551,349 |
|
|
|
— |
|
|
|
551,349 |
|
TMCL VII 2021-3 Bonds |
|
|
524,000 |
|
|
|
— |
|
|
|
524,000 |
|
|
|
|
524,000 |
|
|
|
— |
|
|
|
524,000 |
|
Total (2) |
|
$ |
5,376,765 |
|
|
$ |
878,701 |
|
|
$ |
6,255,466 |
|
|
|
$ |
5,376,765 |
|
|
$ |
339,623 |
|
|
$ |
5,716,388 |
|
All of our debt facilities are secured by specific pools of containers and related assets owned by the Company. In addition to customary events of default as defined in our credit agreements and indenture and various restrictive financial covenants, the Company’s debt facilities also contain various other debt covenants and borrowing base minimums. As of March 31, 2023, we were in compliance with all of the applicable debt covenants.
Cash Flow
The following table summarizes cash flow information for the three months ended March 31, 2023 and 2022:
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
March 31, |
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
Variance |
|
|||
|
|
(Dollars in thousands) |
|
|
|
|
||||||
Net income |
|
$ |
58,595 |
|
|
$ |
77,674 |
|
|
$ |
(19,079 |
) |
Adjustments to reconcile net income to net cash |
|
|
93,646 |
|
|
|
110,285 |
|
|
|
(16,639 |
) |
Net cash provided by operating activities |
|
|
152,241 |
|
|
|
187,959 |
|
|
|
(35,718 |
) |
Net cash provided by (used in) investing activities |
|
|
47,294 |
|
|
|
(473,270 |
) |
|
|
520,564 |
|
Net cash (used in) provided by financing activities |
|
|
(222,401 |
) |
|
|
283,112 |
|
|
|
(505,513 |
) |
Effect of exchange rate changes |
|
|
66 |
|
|
|
(56 |
) |
|
|
122 |
|
Net change in cash, cash equivalents and restricted cash |
|
|
(22,800 |
) |
|
|
(2,255 |
) |
|
|
(20,545 |
) |
Cash, cash equivalents and restricted cash, beginning of period |
|
|
267,409 |
|
|
|
282,572 |
|
|
|
(15,163 |
) |
Cash, cash equivalents and restricted cash, end of the period |
|
$ |
244,609 |
|
|
$ |
280,317 |
|
|
$ |
(35,708 |
) |
Operating Activities
Net cash provided by operating activities for the three months ended March 31, 2023 decreased by $35,718 compared to the three months ended March 31, 2022. The decrease in net cash provided by operating activities was due to a $20,525 decrease in net income adjusted for depreciation and other non-cash items and a $15,193 decrease in net working capital adjustments. The decrease in net working capital adjustment provided by operating activities was primarily due to a decrease of $19,990 in receipt of payments on finance leases, net of income earned, due to lower prepayments on finance leases, partially offset by a $6,365 decrease in gain on sale of owned fleet containers, net.
31
Investing Activities
Net cash provided by investing activities was $47,294 for the three months ended March 31, 2023, compared to net cash used in investing activities of $473,270 for the three months ended March 31, 2022. The change was primarily due to a $500,564 decrease in payments for container purchases, including containers under leaseback financing receivable.
Financing Activities
Net cash used in financing activities was $222,401 for the three months ended March 31, 2023, compared to net cash provided by financing activities of $283,112 for the three months ended March 31, 2022. The change was primarily due to a $495,879 decrease in net borrowings resulting from the decrease in container purchases, and a $5,250 increase in purchases of treasury shares under the Company’s share repurchase program.
Critical Accounting Estimates
We have identified the policies and estimates in Item 5, “Operating and Financial Review and Prospects” included in our 2022 Form 20-F as among those critical to our business operations and the understanding of our results of operations. These policies and estimates are considered critical due to the existence of uncertainty at the time the estimate is made, the likelihood of changes in estimates from period to period and the potential impact that these estimates can have on our financial statements. These policies remain consistent with those reported in our 2022 Form 20-F. Please refer to Item 5, “Operating and Financial Review and Prospects” included in our 2022 Form 20-F.
32
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET AND CREDIT RISK
Quantitative and Qualitative Disclosures About Market Risk
We could be exposed to market risk from future changes in interest rates and foreign exchange rates. At times, we may enter into various derivative instruments to manage certain of these risks. We do not enter into derivative instruments for speculative or trading purposes.
For the three months ended March 31, 2023, we did not experience any material changes in market risk that affect the quantitative and qualitative disclosures presented in Item 11, “Quantitative and Qualitative Disclosures About Market Risk—Foreign Exchange Risk” or in Item 11, “Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk” included in our 2022 Form 20-F.
Interest Rate Risk
We have entered into various interest rate swap agreements to mitigate our exposure associated with our variable rate debt. The swap agreements involve payments by us to counterparties at fixed rates in return for receipts based upon variable rates indexed to the Secured Overnight Financing Rate (“SOFR”). We also utilized forward starting interest rate swap agreements to reduce the impact of interest rate changes on anticipated future debt issuances. We also utilized interest rate cap agreements, which place a ceiling on the Company’s exposure to rising interest rates, to manage interest rate risk exposure. All of our derivative agreements are with highly rated financial institutions. Credit exposures are measured based on the market value of outstanding derivative instruments. As of March 31, 2023, all of our interest rate swap agreements are designated as cash flow hedges for accounting purposes, and any unrealized gains or losses related to the changes in fair value are recognized in accumulated comprehensive income (loss) and re-classed to interest expense as they are realized.
The notional amount of the interest rate swap agreements was $2,028,869 as of March 31, 2023, with expiration dates between April 2023 and December 2033. We pay fixed rates between -0.02% and 3.84% under the interest rate swap agreements. The notional amount of the forward starting interest rate swap agreement is $100,000 with an effective date of February 28, 2024 with a fixed pay rate of 1.96% a and an expiration date of January 30, 2034. The net fair value of these agreements was an asset of $119,266 as of March 31, 2023.
As of March 31, 2023, approximately 91% of our debt is either fixed or hedged using derivative instruments which helps mitigate the impact of changes in short-term interest rates. It is estimated that a 1% increase in interest rates on our unhedged debt would result in an increase of $4,924 in interest expense over the next twelve months.
33
ITEM 4. RISK FACTORS
Other than the matters noted below, there have been no material changes with respect to the risk factors disclosed in Item 3, “Key Information —Risk Factors” included in our 2022 Form 20-F that was filed with the Securities and Exchange Commission on February 14, 2023. Please refer to that section for disclosures regarding the risks and uncertainties related to the Company’s business and industry and the Company’s common shares. The following is a discussion of risks relating to the collapse of certain U.S. banks and potentially other financial institutions which could cause our future results to be materially adversely affected.
The collapse or non-performance of certain U.S. banks and potentially other financial institutions may have adverse impacts on certain of our customers’ ability to pay money owed to the Company or could impact our access to our cash which could adversely affect our financial condition.
On March 10, 2023, Silicon Valley Bank was shut down, followed on March 11, 2023, by Signature Bank and on May 1, 2023, by First Republic Bank. We do not have a banking relationship with these banks. Since that time, there have been reports of instability at other banks across the globe and the recent rapid rise in short term interest rates may continue to pressure banks and financial institutions if a material amount of their fixed rate assets yield less than the cost of their deposits. If any of our lenders, counterparties or depository institutions enter receivership or become insolvent in the future due to financial conditions affecting the banking system and financial markets, our ability to access our cash and financing sources, including transferring funds, making payments or receiving funds, may be threatened and could have a material adverse effect on our business, liquidity and financial condition, including the loss of any uninsured deposits of ours. Furthermore, our customers face the same risks with their financial institutions, which may impact our customers’ ability to pay their current or future debts owed to the Company.
Despite the steps taken to date by U.S. agencies to protect depositors, the follow-on effects of the events surrounding recent bank failures and pressure on other banks are unknown, could include failures of other financial institutions to which we or our customers face direct or more significant exposure, and may lead to significant disruptions to our results of operations and financial position. While we are taking steps to identify any potential impact and manage risks, we cannot be certain that we will be able to avoid negative consequences directly or indirectly from the foregoing events or other impacts on financial institutions.
34
ITEM 5. EXHIBITS
The following exhibits are filed as part of this Quarterly Report on Form 6-K:
Exhibit Number |
|
Description of Document |
101.INS |
|
Inline XBRL Instance Document |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Definition Linkbase Document |
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
Filed herewith.
35
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Textainer Group Holdings Limited |
|
/s/ Olivier Ghesquiere |
Olivier Ghesquiere |
President and Chief Executive Officer |
|
/s/ Michael K. Chan |
Michael K. Chan |
Executive Vice President and Chief Financial Officer |
Date: May 2, 2023
36