Hilliard Terry - EVP & CFO Phil Brewer - President & CEO Robert Pedersen - President & CEO, Textainer Equipment Management Limited

Michael Webber - Wells Fargo Securities Helane Becker - Cowen and Company John Barnes - RBC Capital Markets Art Hatfield - Raymond James & Associates Doug Mewhirter - SunTrust Robinson Humphrey

Welcome to the Q1 2016 Textainer Group Holdings Limited Earnings Conference Call. My name is Katy and I will be your operator for today's call. [Operator Instructions] I will now turn the call over to Executive Vice President and Chief Financial Officer, Hilliard Terry. Mr. Terry, please go ahead.

Thank you and welcome to Textainer's 2016 first quarter conference call. Joining me on this morning's call are Phil Brewer, TGH President and Chief Executive Officer. At the end of our prepared remarks, Robert Pedersen, TEM President and Chief Executive Officer, will join us for the Q&A. Before I turn the call over to Phil, I'd like to point out that this conference call contains forward-looking statements in accordance with U.S. securities laws. These statements involve risks and uncertainties, are only predictions and may differ materially from actual future events or results. Finally, the Company's views, estimates, plans and outlook as described within this call may change subsequent to this discussion. The Company is under no obligation to modify or update any or all statements that are made. Please see the Company's annual report on Form 20-F for the year ended December 31, 2015, filed with the Securities and Exchange Commission on March 11, 2016 and, going forward, any subsequent quarterly filings on Form 6-K for additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements. I would also like to point out that during this call, we will discuss non-GAAP financial measures. As such measures are not prepared in accordance with generally accepted accounting principles, a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP measure will be provided either on this conference call or can be found in today's earnings press release. At this point, I would now like to turn the call over to Phil on his opening comments.

Thank you, Hilliard. I would like to welcome you to Textainer's first quarter 2016 earnings call. Our first quarter results reflect the continuing negative impact of limited trade growth and low new and used container prices. Lease rental income decreased 5.6% from the prior-year quarter to $122.1 million. Utilization has remained high, averaging 94.6% for the quarter and is 94.1% currently. Adjusted net income for the quarter was $6.4 million or $0.11 per diluted common share. Growth in trade last year was estimated at less than 1%, below estimated GDP growth of approximately 3%. Other than 2009, 2015 was the first time since 1980 the container trade lagged between world GDP growth and only the second time since 1980 that there was effectively no year-to-year growth in container trade. These trends largely continued during the first quarter, leading to limited lease-out demand and rental rates remaining under pressure. New and used container prices continued to decline, with used prices down 25% to 30% over the last year. A significant reason for our first quarter decline in performance was the $17.3 million of impairments we recognized as we put containers to disposal or further wrote down containers already in disposal status but not yet sold. Notwithstanding current sales prices, when our models indicate selling a container is the right economic decision, we allocate the container for sale instead of keeping it in our fleet and incurring storage costs. Freight rates are at historically low levels and are not expected to improve materially in the short term because, in part, not only is there excess vessel capacity currently, but also vessel capacity continues to grow at a faster rate than trade. Low freight rates have hurt the financial performance of many of our shipping line customers. Two major Asian shipping lines have entered into restructuring negotiations with their major lenders. Our credit department and regional offices are actively monitoring these accounts. Our cash flows remain strong, with adjusted EBITDA of $96.5 million for the quarter, with 84% of our fleet subject to long term and finance leases, of which only 8.5% mature in 2016 and only 8.1% in 2017. And our loan leverage, we remain confident in our ability to generate cash during these challenging market conditions. As a result, we have maintained a dividend at $0.24 per share in spite of our lower adjusted net income. We started 2016 off strongly, with $228 million invested year to date. Two-thirds of this amount was invested in new dry freight, refrigerated and tank containers; and one-third was used to purchase outstanding leases in containers from a financial investor that decided to exit container leasing. We view consolidations among lessors and the exit of other market participants as positive for market stability and pricing discipline and as an attractive investment opportunity. Steel prices have strengthened recently, resulting in new container price increases of approximately $150 over the last few weeks. Should this trend continue, rental rates for both new and maturing leases and demand for depot container lease-outs should increase. Used container prices could also be expected to increase, although any improvement is likely to be delayed, given the large quantity of containers being put to sale. The long term nature of our fleet, combined with our consistent buying over the years, provides stability to our cash flow. As evidence of this, our rental income per CEU per day declined significantly less than the decline in lease rental income and, more importantly, has been relatively constant since September 2015 even though new lease rates continued to decline. Year-to-date orders for new dry containers are estimated to be 330,000 TEU. At this rate 2016 production could be below 2 million TEU compared to 2.5 million TEU in 2015 and 3.2 million TEU in 2014. With projected disposals of more than 1.5 million TEU, the size of the world's container fleet is likely to remain relatively stable this year. Additionally, factory dry freight inventory has fallen for 10 months and now totals approximately 690,000 TEU, well below the peak of 1.1 million TEU reached early last year. The world's container supply is under control, unlike the excess vessel capacity affecting the shipping lines. When trade picks up, container demand could increase rapidly. Indeed, lease-out demand in April was up significantly over April of last year and container turn-ins were down from earlier in the year. We also believe that more than 60% of new container orders in 2016 have been placed by lessors. Notwithstanding these positive trends, we expect the remainder of the year to be challenging. Our results will continue to be negatively affected by impairments from low-use container prices; rate reductions from the repricing of maturing leases; increases in depreciation expense; and a possible increase in interest expense, should the credit markets tighten. As we have said many times, our industry is and always has been cyclical. We've been leasing containers for 37 years and have successfully managed through many cycles. We believe containers purchased at today's prices will provide attractive returns over their 13-plus year useful lives and that with our low leverage, we're well positioned for the challenging market conditions we expect. I will now turn the call over to Hilliard.

Thank you, Phil. Lease rental income was $122.1 million, down 5.6% year-over-year due to a 5.1% decrease in average per diem rental rates and a 3.4 percentage point decline in utilization, partially offset by 1.7% increase in the size of our own fleet. We continue to see mark-to-market losses on equipment held for sale. In the first quarter we had $17.3 million or $0.31 per share of equipment impairments as we wrote down containers in our existing sales inventory or containers recently designated for disposal to their net realizable value. We expect impairments to continue at this level until we see some stabilization and/or increase in used container prices or the volume of containers moving to our sales inventory slows. On the expense side, direct-to-container expenses increased $5.4 million or 59% year-over-year to $14.6 million for the quarter. $3.8 million or close to three quarters of the increase was due to higher storage expense. Depreciation expense was $52.5 million for the quarter, up $8.8 million year-over-year. As a reminder, included in the increase was $4.7 million of additional depreciation expense resulting from the Q3 2015 change in the residual values of our 40-foot-high cube containers. The remaining portion of the increase was due to the larger size of our own fleet, partially offset by lower new container prices. Annualized depreciation expense for the quarter was 4.7% of average gross container value on our balance sheet and we expect annualized depreciation to run between 4.5% to 4.9% of average gross container value. Bad debt expense was $1.1 million or 0.9% of revenue. We continue to believe our bad debt expense should trend within our historical run rate of 0.5% to 1% of total revenue. Our interest expense, including realized hedging costs but excluding the write-off of unamortized bank fees and unrealized losses on interest rate swaps, was $22.3 million for the quarter, up 1.6% versus the year-ago quarter. We continue to benefit from our refinancing activities over the past year or so. Our average effective interest rate which includes realized hedging costs, is currently 2.97%, an increase of 5 basis points when compared to the year-ago quarter, due to a year-over-year increase in the benchmark rate, mostly offset by our hedging. Looking forward, we have a very manageable debt maturity schedule. We do not have a refinancing need until 2018, when $167 million or only 5% of our current debt outstanding will need to be paid down or refinanced. In 2019 $331 million or only 11% of our debt comes due. As of quarter-end, over 75% of our debt was fixed or hedged which is close to the percentage of our own fleet subject to long term and finance leases. The weighted average remaining term of our fixed and hedged debt is 45 months. The weighted average remaining term of our long term and finance leases is 38 months. Adjusted net income for the quarter was $6.4 million or $0.11 per diluted common share. The write-down of containers held for sale reduced our earnings per share by $0.31 per share. Turning to balance sheet, as of March 31, 2016, our cash position was $116 million, with standby or available liquidity of more than $500 million. Total assets were $4.4 billion and container contracts payable are down significantly year-over-year due to the lower level of container purchases. We declared a dividend of $0.24 per share in spite of a small GAAP loss. We do not believe that the large non-cash items should be factored into the payout. In fact, if you exclude non-cash items, such as depreciation, impairments, long term incentive pay and unrealized gains and losses on interest-rate swaps from our adjusted EPS, you will see that we're paying out roughly 18% to 19% of our cash generation per share which is the same as the prior quarter. As a reminder, some or all of such distributions may be treated by U.S. shareholders as a return of capital rather than dividends. We did not repurchase any shares during the first quarter of this year, as we opted to focus on returning cash in the form of a consistent dividend. Thank you for your attention and now I'd like to open the call up for questions.

[Operator Instructions]. And our first question comes from Michael Webber from Wells Fargo. Please go ahead, sir.

Phil, just wanted to start off with asset values. And it seems like it's been kind of a delayed reaction in box prices, just given the fact that production was kind of shuttered; that, you know, we saw the big move in iron ore and steel and box prices kind of sat. It seems like the equities at least reacted in real time. But I'm curious as to just how the mechanics of this are going to play out in terms of the $150 of upside from the bottom. On one hand, it looks like that's on a percentage basis and there are a lot of inputs to this; but it doesn't seem like that would imply the manufacturers would be fully capturing the lost margin from the bump in iron ore. So I guess one question -- I guess the first part of the question is, is there upside to that $150 figure? And then I guess the second part of that question is what kind of print have we really seen at $150? I know there's not a ton of new business right now; it's picked up seasonally. But how firm is that number? Is that kind of a one-off deal at this point?

Let me start by saying that I think the $150 probably underestimates -- this is something that, frankly, every day we get updates about where new container prices are and it would appear that prices could well be $200, $250 off the bottom. But you raise an interesting point which is, there's not a lot of buying of new containers going on right at the moment. And so it's difficult to tell exactly where the price is for new containers. We haven't been an active purchaser at these prices. Clearly, if demand picks up, we will. We actually have a strong supply of containers we've purchased at very attractive prices that we're ready to use. But right now we haven't been buying at the new prices.

Is that strategic or is that just simply a function of when your customers come and ask you for it?

Well, as we've always said, we try to maintain a supply of new containers at the factory somewhere between $150 million to $250 million worth of containers. So, we will buy in advance of need. We were fortunate to have purchased containers at prices that we now believe are going to be very attractive prices for this year. But still, having said that, I think it's too early to say whether the recent increases in prices we've seen are going to stay for the remainder of the year, but they certainly been much stronger than we had initially anticipated. I think what you were implying initially about the level at which the manufacturers were producing, our data would indicate that they are actually producing below their cost. And it seems now that they are starting to drive the prices up to a level where they are actually covering both their fixed and variable production costs.

Yes, that was kind of my follow-up there to whether they were actually kind of recouping some of that lost margin. Okay, I can follow up on that off-line; it's pretty interesting. Just a couple more and I'll turn it over. Obviously, I guess if we stay with industry dynamics and kind of fleet growth technically, we've seen some M&A in this space almost -- kind of consistently for the last few years. But it seems like PE has kind of come and then gone and we've seen some operators consolidate. And now it seems as though, at least within other leasing spaces, we've seen some of the Chinese private equity buyers step back in for aircraft. And on the other hand, it seems like there's some strategic sellers that could be looking to offload assets. I'm just curious as to what that dynamic looks like for you guys now. I know you got a ton of questions on it after a couple of your competitors merged. But just as we stand today, what do those dynamics look like? And you think it's conducive for Textainer to tack on kind of large chunks of kind of on-the-water assets?

We think consolidation in the industry is positive. Whether we participate in that consolidation or not, we still think it's positive. For years we've been the lowest-cost producer. If we see further consolidation, I have no fear that we'll still be a very aggressive competitor in the industry, whether or not we're involved in that consolidation. As we mentioned, part of the CapEx that we have had year to date is purchasing assets not from a lessor, but from a financial institution that was getting out of container leasing. Frankly, the returns on those assets were very attractive. So we're looking for all opportunities we can to grow our fleet. That could be consolidation; it could be through other mechanisms. But any type of consolidation or, frankly, exiting from some of the financial players we view as positive for the industry.

And maybe if I could just come at that from, I guess, a more direct angle, relative to when we saw the last major M&A transaction announced, do you think the environment is appreciably or significantly easier or more difficult to add on large blocks of on-the-water tonnage? What's changed since we saw, I guess, TAL and Triton get together? If anything?

Yes, I was going to say -- I'm not sure that there's a real strong answer to your question. I think that the factors driving consolidation in our industry that were in existence when TAL and Triton announced their deal remain the same which is that we're in an industry where economies of scale are important. And I can see that the factors pressing for consolidation remain. It is certainly something that we see will benefit the industry -- again, whether we participate or not.

And Mike, in the meantime, we will continue to pursue organic growth. And we try to maximize our market share in dry containers and reefers and buy new container assets at what we still consider are very good prices.

Okay. I think I've prodded that from just about every angle I can. Just one more and I'll turn it over. And I guess this is for Hilliard. You mentioned your bad debt expense, kind of keeping it at kind of a pretty consistent level. I believe it's between 0.5 point and 1 point. And I think you gave a pretty similar answer or comment last quarter and since then we've had another line in Hanjin look to renegotiate contracts, again, on the ship side. I don't think we've heard anything on the box side. Just curious, you know, again, same kind of question, like, quarter on quarter is there any appreciable difference in terms of the credit risk in this space and how you guys look at that mix? Or are you guys incrementally more selective of who you want to do business with here, just given the fact that that market does seem so challenging, given the excess of tonnage?

Yes, Mike, we're always very focused on credit risk. And so as it relates specifically to Hanjin and Hyundai Merchant Marine, that's something that we continue to watch. We, along with, I think, all large lessors in the industry have exposure to them. But to date, as you said, I think the challenges have been more on the ship chartering side of things and they continue to be fairly current in terms of their payments to us. But again, that's a situation that we're watching very closely. And when we've seen issues in Korea in the past, I think we've done fairly well throughout the process and recovery.

Okay. Actually, I have one more. And this is a high-level question just for, I guess, Phil or Robert. But in addition to the counterparty issues, we've also seen the reformation of a couple of major alliances and then continued consolidation in the liner space as well. So just from a high-level perspective, as we think out over the next 5 to 7 years -- maybe not quite that long, but as you start to see that end of the business continue to kind of consolidate and rationalize capacity, dynamics in the lessor space are much tighter than they are on the shipping side; but I'm just curious how that plays out longer term, if you were to map out the next three or four years of what potentially changes within your business as a result of having fewer and more efficient counterparties? Just any color there would be helpful.

Well, there are kind of two questions in that, Mike. One is the consolidation that's taking place among the shipping lines and another thing is the alliance set-up which, of course, is somewhat different. You know, the recent shakeup was partly caused by M&A activity within the shipping lines; but it was also -- you know, you had one alliance which was much greater than the others and the others want to catch up. You now have two mega-alliances or will have that as of January 1 next year. And obviously, there will be other moves by the remaining players to try to form some constellation that can match up with the two biggest alliances. So with that in mind, we do think that consolidation among our shipping line customers will continue. And there will be a lot of news in the next 3 to 4 months about how they are going to set up the other alliances and who's going to work with who on the sideline and whatever. Right now, we haven't heard of anything that directly changes our business model. But obviously, we're monitoring that, should that change. Let's face it, the alliance concept is not new, the size is just bigger. Our business model didn't change significantly when we went from 1 million to 2 million to 3 million TEU and we're already one of the biggest suppliers to most of the top 25 shipping lines. So in the near term, we don't see much change. But obviously, something we're going to monitor, should there be a project going in terms of equipment pooling or joint negotiation or whatever, what you see among some of the other cost items. But I think when you look at it in total, the container cost for a shipping line is not significant compared to many of the other operating parts. So it won't get top priority when it comes to the gain for additional efficiency that every shipping line is seeking right now.

And our next question comes from Helane Becker from Cowen and Company. Please go ahead.

Is there anybody other than the two shipping lines you referenced that you are worried about in terms of bad debt collections?

Well, all of shipping lines right now in general are under stress. We've got freight rates at historically low levels. You just saw Maersk come out today and announced that their income was down dramatically on a year-to-year basis. So I think there's two factors at work here. One, sure, there is increased credit risk in our industry at the moment because of the level of freight rate. On the other hand, the point that was just being discussed about consolidations -- and I think over time that will improve the credit risk of the industry. So we've got both those factors at work. There's no specific shipping line that we're looking at, on the other hand, we're very cognizant that all the lines are under pressure.

Okay. And then my other question is more -- I don't know if you want to call it big picture, but when you think about the business over the last, maybe, two years, let's say, we really have not seen very much growth. And we certainly haven't had a peak shipping season. World trade has been kind of under pressure. The U.S. looks like it's going to a more protectionist -- climate over the next few years, potentially. I mean, when you think about recovery in the business, how do you think about -- like, what's it going to take to get trade back to that 5% to 6%, 7% level, 4% to 7%, even, level that would get demand for containers up again?

I think you've seen a lot of press that the multiplier effect of trade relative to world GDP growth which used to be, when we first started in this industry, pretty close to 3 times; came down to 2.5 to -- kept dropping a bit, is now around 1. And personally I think that it's likely that that number is going to stay in that range; 1, perhaps 1.5. Right now, in fact, as I had mentioned earlier, it's less than 1. But in that range for some time. So you're likely going to see the rate of growth of container trade being pretty similar to the rate of growth of the world's GDP for the next couple of years.

Maybe I can add to that. On the pure container side, there's a lot of replacement taking place right now. There is no global surplus of containers and the shipping lines are using the opportunity right now to renew their fleets. And the lease ratio this year is way up compared to previous years and that goes for both dry containers and reefers. So there are growth opportunities for our sector in this market that is not growing that much in total, simply by 2% to 2.5% growth combined with replacement taking place.

Okay. And then just my last question is on the CapEx, did you say and I just forgot, the number -- the amount of CapEx you are targeting for 2016?

No, we didn't give a number. And we generally haven't done that in the past. And I'd say, frankly, it would be very difficult to do it this year, even if we had a habit of having done it in the past. It's very hard to say. Our CapEx in the first quarter was more than we would've expected, partly of it because of the purchases that we made from third-party sellers. But this really is customer driven. And if we find that there's shipping line demand, clearly our CapEx will accommodate that demand.

And our next question comes from John Barnes from RBC Capital Markets. Please go ahead, sir.

A couple of things -- and I'm just trying to think about as we look at the model going forward -- you reported maybe a revenue number that was slightly better than we were looking for. And I'm curious, the early termination fees and revenue derived -- can you give some idea of what that was? And how did that compare to a year ago and maybe sequentially?

I'm sorry, John; I didn't quite understand your question. I couldn't quite hear it, actually.

Sorry, is that better? I've been having problems with the headset. Early termination fees and revenue in the quarter. Can you talk about what it was for the quarter? How that compared to a year ago and sequentially?

I'm sorry, we don't have a breakdown of the year or I don't personally have a breakdown of the early termination fees as a portion of our revenue. But I would say that I don't -- those for not a driver of the revenue growth that we saw.

Okay, all right. You know, in terms of the rebound in steel prices and I recognize this is the first time we've had a positive catalyst in a little bit. Do you feel like it's moved enough to start influencing the conversation around rates yet? Or is this just going to provide a little bit of maybe stabilization on the gains in the trading revenue line? Will it have some positive influence on the rate discussions yet?

It will certainly have an influence on the deals that we will close from now on out. And if this level that we're seeing right now sticks for a longer period, then it would also positively influence the lease renegotiations of expired long term leases and other contracts. No doubt. Quite frankly, higher prices are good for us as long as nobody's buying cheaper than us.

I would like to just maybe add to what I said earlier, because our lease revenue was down. And I may sound like I misspoke there. But what I do think happened is that our lease revenue was higher than what many of the analysts projected. That may be what you were referencing in your question. And the point I want to make is that I think some of the analysts put too much pressure on watching new lease rates drop and assuming that that's going to translate immediately into our lease revenue, when we've got a fleet that is 84% term lease and finance lease. And only, say, 8% is rolling over, 8% to 9%, on an annual basis. So there's a tremendous amount of stability in our fleet that I think is sometimes underestimated. The point I made earlier about new lease rates dropping 9%, 10% year on year; and our actual performance, as we calculate it on a per-CEU basis, being significantly less than that is a demonstration of the fact that there's a lot of stability in our revenue stream and I think sometimes that is missed by the analysts.

Yes, and that's what I'm trying to -- you know, we had it down 5% for the quarter. You were down, I guess, about 2.5%. I'm just trying to understand. And the reason I ask the question on early termination is, if we get into a period next year where things begin to stabilize, I want to make sure that we don't build in too large a revenue number, if something like early termination fees were influencing the revenue this year. So I don't disagree with you on that. My last question is, there's been a lot made about the SOLAS rules and finally maybe getting some clarity as to what those rules are going to look like. There's been some conversation about the number of global TEUs that move overweight on a daily basis. Do you have any feel yet for the change in the rules and what type of influence that may have on container demand going forward?

Obviously, it's too early to say exactly what will happen, but I think both shipping lines, shippers and our industry will expect it to slow down the turnaround of container assets. Certainly initially until a solid set-up has been implemented that works at a very fast speed and we have not seen that yet. We're providing all the data we can to our shipping line customers to facilitate them into a system in this process, but there's a lot more that has to happen before this becomes a very efficient system. And quite frankly, I think both the shippers and the shipping lines are pretty concerned of how they're going to deal with this when this is fully implemented.

And our next question comes from Art Hatfield from Raymond James. Please go ahead, sir.

Just one quick question. You talked a little bit about new container prices moving up. Can you talk about how that may affect or if there's kind of a historical relationship when that may start to affect disposal prices that you get for the containers?

Yes, historically new container prices and used container prices move very similarly. The correlation is quite high. I think this time we're going to see a lag before used container prices respond to increases in new container prices. So assuming that this increase in new container prices stays, I think we could expect to see an improvement in used container prices. But it will be delayed and I would say it could be delayed, say, two quarters. Maybe longer, but I think that's a fair guess right now. And it's simply a factor of -- the inventory of containers or the quantity of containers that are and will be put to disposal over the next couple of quarters, I think, will still remain strong and keep pressure on prices. But should new prices continue to rise or stay at these new levels, they will affect used container prices in the future.

And just to clarify, I think in Hilliard's guidance, Hilliard, you had mentioned that your expectations for asset write-downs related to used containers going into sale would be about the same as they were in Q1. Is that assuming that those used prices kind of stay at current levels?

That is assuming that, Art. It's two variables that go into it. It's used container prices; it's also the volume of containers that are being put to disposal.

We're not projecting increases in used container prices internally at this time.

And our final question comes from Doug Mewhirter from SunTrust. Please go ahead, sir.

I had two questions, one more on numbers, a financial question. I noticed that while your utilization went down from 4Q to 1Q about 110 basis points on an average basis, your direct expenses also went down on a slightly higher portfolio. And usually there is an inverse relationship between that. And I was wondering if you had maybe incurred lower storage costs or maybe you had an unusual amount of maybe one-time expenses in 4Q that didn't carry over? Just any color on that would be helpful.

Yes, I'm actually looking right now at the sequential compare. And I'm not seeing anything. Let me take a look at it on a sequential basis and I could circle back to you.

The second question, on your portfolio purchase, were you approached singly? Was this put out to bid? And also, was this a portfolio that you had managed in your fee-based portfolio previously?

No, we had no link to these assets prior to this. We were approached by the party looking to sell the assets. They weren't put to bid. We just negotiated directly with them and acquired the assets.

And could you disclose or are you willing to disclose the number of either CEU or TEU that came along with that portfolio?

No, we didn't disclose that. But it did represent about one-third of our CapEx year to date.

One last question, I'm sorry, back to utilization, your current utilization, about 94.1% -- well, the first quarter averaged about 94.6%, but you said there might be some sort of tentative signs of life in your April activity. Do you think that, given the trends and the current momentum, that you could -- that that utilization could sort of recover back to that mid-94%s for the quarter? Or are you sort of too deep in the hole to start it off?

Well, it's a little early to predict whether we can get to that level in the short term. We have seen a reduction in our re-deliveries and we've seen a very significant increase in our lease-outs. So the ratio is a lot more positive for April than it was in any of the months in the first quarter and we have one equipment type where utilization is already starting to turn and rise to the positive. We're still waiting for the other main equipment types to go in the same direction. How quickly it's going to go is not just influenced by the lease-outs; it's obviously a conversion of these bookings into physical on-hires -- and also whether we can continue the trend to reduce off-hires. If the trend we're seeing right now continues, then we will see a positive development in utilization.

Thank you. This concludes the question-and-answer session. I will now turn the call back to Mr. Hilliard Terry for closing remarks.

Thank you, we appreciate you attending our conference call. We look forward to talking to you as we progress through the quarter. And if you have any follow-up questions, we're around to answer your questions. Thanks a lot and we'll speak with you soon.

Thank you, ladies and gentlemen, this concludes today's conference. Thank you for participating and you may now disconnect.