Greetings. Thank you and welcome to Textainer's second quarter 2019 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be provided at that time. As a reminder, today's conference call is being recorded.I will now turn the conference over to you host today, Mr. Ed Yuen, Investor Relations for Textainer Group Holdings Limited. Please proceed, sir.

Thank you. Certain statements made during this conference call may contain forward-looking statements in accordance with U.S. securities laws. These statements involve risks and uncertainties, are only predictions and may differ materially from actual future events or results. The company's views, estimates, plans and outlook, as described within this call, may change after this discussion. The company is under no obligation to modify or update any or all statements that are made.Please see the company's annual report on Form 20-F for the year ended December 31, 2018, filed with the Securities and Exchange Commission on March 25, 2019 and going forward, any subsequent quarterly filings on Form 6-K for additional information concerning factors that may cause actual results to differ materially from those in the forward-looking statements.During this call, we will discuss non-GAAP financial measures. As such, measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures will be provided either on this conference call or can be found in today's earnings press release.Finally, along with our earnings release today, we have also provided slides to accompany our comments on today's call. Both the earnings release and the earnings call presentation can be found on Textainer's Investor Relations website at investor.textainer.com.I would now like to turn the call over to Olivier Ghesquiere, Textainer's President and Chief Executive Officer, for his opening comments.

Thank you Ed. Good afternoon everyone and thank you for joining us today for Textainer's second quarter 2019 earnings call. I will begin by reviewing the highlights of our second quarter results and then I will provide some perspective on the industry. Michael will then go over our financial results in greater detail, after which we will open the call to your questions.We are pleased with our performance in the second quarter where we delivered stable lease rental income of $155.1 million and adjusted EBITDA of $114.7 million, despite the slow market activity in the second quarter that has persisted in the third quarter to-date. New container activity continues to be driven by macro headwinds such as slow European trade, a slowdown in Chinese economy and ongoing trade disputes. While overall market growth remains muted, Textainer has been proactive and disciplined with new lease opportunities.During the second quarter, our fleet grew by 190,000 TEU as we made container investment at attractive rates and double digit returns. This was achieved as we successfully targeted replacement demand opportunities with some of our strong customers' relationship to achieve mutually beneficial deals when new container prices reach a low point in the earlier part of the year. We expect to see the full impact of the net TEU growth to lease rental income to be completely realized in the third quarter, though partially offset by a reduction in further additional CapEx. At the end of the second quarter, we owned approximately 81% of our fleet, which stood at 3.6 million TEU.Overall, there have been very few significant deals form shipping lines and new container prices have decreased to the current level of approximately $1,750 per CEU, primarily driven by weak new container demand. Rental rates for new container lease-outs have declined in line with new container prices, but the total volume of new deal was small and we do not believe that they were representative of normal market conditions. As we had mentioned in prior call, this management team is focused on a disciplined growth strategy and we have not chased down rates on the few competitive open tenders.During the second quarter, our utilization remained strong at 97.9%, while demand for new lease-outs was low, we continue to see a moderate manageable level of turn-in and an attractive container resale environment. The market supply remained stable with total new dry van eventually slightly above one million TEU, representing only three month supply in a normal market environment. In addition, there was very limited new container ordering in the past few months and we are starting to see factory shutdowns which are positive signs for the industry utilization and inventory level.While the general market activity remains low, we are particularly pleased with our cost control initiatives. We achieved further declines in both G&A and direct costs in the second quarter as compared to the first quarter and prior year. We intend to continue working on minimizing cost level going forward.Unfortunately during the quarter, we incurred $9.1 million in impairments and $3.3 million in bad debt expenses to recognize a potential exposure from a nonperforming midsized regional shipping line. This customer is continuing to operate and attempting to restructure with some recently announced government common support. We believe this incident to be an isolated credit issue and we currently do not have any significant concern with customer credits.To provide some context, Textainer has had a long-standing relationship with this customer and there was no recent history of credit issue. The company was profitable over the last two financial years and conditions that led to the default arose from alleged financial misappropriation reported this quarter. We remain cautiously optimistic that the government-led restructuring will ultimately allow this carrier to regain market confidence and become current in their obligation but we do believe it is prudent to recognize this impairment now as we actively seek redelivery of our containers and has filed an insurance claim for the matter.The financial impact to Textainer is contained as our exposure is capped at our insurance policy deductible of $10 million and the total container value of these leases is well below our coverage limits. Our management team continues to be proactively taking expedient steps to address credit concern and limit exporter as soon as potential issues are identified.Turning now to our outlook for the balance of the year. We believe new container demand will remain muted in the third quarter. The outlook for Q4 remains uncertain pending economic activity level and ongoing trade negotiation. This will result in limited additional supply of new container as well as likely additional factory closure, which will help stabilize the overall container supply. The IMF recently revised its 2019 global growth forecast to 3.2% and we expect global container throughput growth to remain well above 2.5%. We believe these levels are still supportive of moderate shipping volume growth.There is innate replacement demand for containers that are coming to the end of their life and will need to be replaced with new production. We expect container lessors' utilization to remain high and continue to support strong resale prices. And finally, we believe shipping lines will continue to increase their reliance on container leasing companies as they focus their liquidity on necessary CapEx related to new ships and compliance with the IMO2020 emissions regulations. We continue to believe leasing companies will represent approximately 60% of total purchase.In summary our performance is reflective of the low level of market activity in the second quarter, which has continued into the third quarter. While there were a few significant lease-out opportunities, we managed to grow our fleet by securing specific replacement opportunities at attractive yields with several of our valued customer relationships. We expect the slow growth environment to persist in the short term given the current macro headwinds. However, the fundamentals of our business remain positive, as evidenced by the industry high utilization rate, limited new orders and favorable container resale environment. We continue to normalize our costs and keep our balance sheet well positioned while waiting for any possible uptake, which will eventually materialize.I will now turn the call over to Michael who will give you a little more color about our financial results for the past quarter.

Thank you Olivier. I will now focus on the key drivers of our financial results. Q2 lease rental income was $155.1 million, a decrease of only $400,000 as compared to Q1. This included the impact of higher CapEx in the second half of Q2 offset by a slight decrease in utilization. Q2 trading container margin was $3.4 million, an increase of $800,000, compared to Q1 due to an increase in per unit margins and the number of trading containers sold.Q2 gains on sale of owned fleet containers, net, was $5.4 million, a decrease of $1.4 million, compared to Q1 and included a reduction in average gain per container sold. While our average gain per container sold decreased, the resale container price environment is still favorable. Q2 direct container expense for the owned fleet was $10.8 million, a decrease of $0.9 million, compared to Q1, primarily due to a decrease in repositioning expense and maintenance expense. We are pleased with this improvement and believe our direct container expense reflects a lower baseline level going forward.Q2 container impairment included a $9.1 million charge for estimated unrecoverable containers held by a nonperforming lessee. Bad expense also included a $3.3 million reserve for receivable due from the same lessee. As discussed earlier by Olivier, this lessee continues to operate and is undergoing a new restructuring program with involvement from a significant government controlled entity with experience in asset management. While we are cautiously optimistic that the program will improve lessee's operating performance, we believe it is still prudent to recognize these charges in Q2.Q2 depreciation expense was $61.7 million or relatively flat compared to Q1. Q2 general and administrative expense was $9.4 million, down $0.4 million from Q1, primarily due to a reduction in compensation costs and professional fees. We are pleased that this reflects an improved baseline level going forward. Q2 interest expense including realized hedging gains was $37.1 million, an increase of $1 million from Q1, driven primarily by a higher average debt balance due to CapEx.Our Q2 effective interest rate was 4.3% and remains one of the lowest in our industry. Q2 unrealized loss on interest rate swaps, collars and caps, net, was $10.1 million, primarily resulting from a decrease in the forward LIBOR curve at the end of the quarter which reduced the spot mark-to-market value of our interest rate derivatives used for long term hedging purposes. We intend to hold the underlying hedges until maturity. Therefore, any unrealized gain or loss will net to zero over the life of the hedge. While we have an income tax benefit of $0.2 million for Q2, we continue to expect our annualized income tax rate to be in the mid single digits.Q2 net income was $0.3 million or $0.01 per diluted common share. Q2 adjusted net income was $9 million or $0.16 per diluted common share. Adjusted net income for the quarter excluded the noncash unrealized loss on interest rate swaps, caps and collars and a gain from an insurance recovery and legal settlements. Had we excluded the impact of charges associated with the nonperforming lessee, Q2 adjusted net income would have totaled $21.4 million, relatively stable compared to the previous quarter. Q2 adjusted EBITDA was $114.7 million, down $3.4 million when compared to Q1.Turning now to our liquidity. We ended Q2 with a cash position inclusive of restricted cash of $244 million, an increase of $24.5 million from the prior quarter. Finally, subsequent to the end of Q2 on July 29, we announced the completion of an amendment to extend the term and lower pricing on our $1.2 billion warehouse credit facility. The revolving period of the facility was extended by three years to July 2022 and the spread was reduced by 15 basis points to 1.75%. We are very pleased with the continued support of our bank group on this transaction, which improves Textainer's capital structure and financial flexibility.This concludes our prepared remarks. Thank you all for your time today. Operator, please open the line for questions.

[Operator Instructions]. Our first question comes from Helane Becker with Cowen. Please proceed with your question.

Hi guys. This is actually Cunningham, in for Helane. How are you?

Good. How are you?

Good. So I just wanted to go back to the CapEx replacement comment that you had. So I was a little surprised to see the size of the investment but obviously you spoke to like it being more replacement than growth. When you talk about container replacement like annually, like from an industry level, how many containers need to be ordered to just keep the fleet flat on a year-to-year basis?

Are you talking for the industry or for Textainer specifically?

The industry as whole, yes.

For the industry as a whole, we estimate that about 5% of the total world fleet needs to be replaced annually which in itself represents probably 1.5 million TEU a year of dry van equipment. So it's about half of the production in a normal year.

Okay. Perfect. And then I just wanted to talk a little bit about the trade war that's going on. So may be come at it from a little bit different angle. So I think originally when the trade war started, the consensus felt like global trade would slow and that's pretty much played out as one would expect. But can you speak to maybe anything that you have seen that surprised you as a result of the dispute? Like it seems like trade lanes are shifting pretty quickly overall. May that's been consistent with your thoughts or just any thoughts around what surprised you around the trade war, that would be helpful.

Well, there's several very interesting that have happened. I think for me probably the most surprising thing has been to see how well shipping volumes have held up. When this whole trade tariffs were initially implemented, I would personally have expected a more direct impact. The reality is that the volumes have held up very strongly. Ships have remained very full over the duration. And one of the big conclusions is that initially the tariffs have not had an immediate, direct impact on the volumes.They have more of a psychological impact in terms of driving new demanded and especially new investment in China. But I think that they haven't affected immediately the volume. There was a big surge last year. And I think that we are still in a way paying the price today for that big surge because we were now in kind of a lull and we have been in a slow market for maybe nine months or a little bit more than that, certainly from a leasing perspective. But shipping lines have continued to enjoy fairly large volumes.What we have also seen is a shift in some production to other countries. There has been a lot of talking about Vietnam picking up a lot of opportunities. Their exports are up 20%. But I would say that's something that we had started to observe even before the tariffs were implemented. It's certainly being accelerated by the situation. But it has started before and it was driven primarily by the fact that production costs over the years have become uneconomical in China and producers were looking at shifting production and Vietnam is probably the number one beneficiary of that.But we see other countries benefiting from that. I mean we see India, we see Bangladesh, we see Thailand benefiting. So there has been some shift in production but that I think will materialize over a longer period of time than over just a few months.

Okay. Great. And then last one for me, just on the current environment with demand that's relatively low for new containers and just moderate trade growth going forward due to the dispute. Is there an opportunity for you to convert your managed fleet to owned? I would think that that would be a pretty accretive way to drive TEU volumes to you guys at a high level? Any thoughts there would be great. Thanks again.

Well, thank you. We are certainly on the look out for that. That's a very attractive investment proposition for us. A couple of good things related to that. We typically can get that equipment at a good basis and one attractive characteristic also is that if we buy a fleet that's already under our current management, that equipment is already on lease, so earning revenues from day one of ownership. So it's certainly something that we always watch for and are open to.

But is there any barriers from that occurring? Like is it more like your customers have to want to give up the containers? Is that kind of how you view it?

Sometimes we see that some customers may have who are partners, wants to exit their position. So we provide them a option to liquidate and transfer the cash that change their position. I think it's a good option and option for them to get out on a very quick, flexible basis. And if they think about it, we are the likely buyers of that. We understand that very well and we can respond quickly too. So I don't really see too man y beers in them going that direction. In fact, I think it's a good option for them to look at that as a potential exit.

Okay. Great. Thank you.

You are welcome.

Our next question comes from Scott Valentin with Compass Point. Please proceed with your question.

Hi. Good afternoon. Thanks for taking my question. Just to get more on information on the credit. It sounds like there is potential for recovery. Is that recovery the receivable? Or do you recovery of the write-off of the containers? I am just trying to get a sense because it sounds like the entity continues to operate or anticipates continuing to operate. I am just wondering the probability of maybe collecting in the out-periods?

Hi Scott. No, you rightly point out that we have decided to be prudent and to be proactive and in this case. But the company continues to operate. There is actually a government related agency that is trying to restructure the company. And certainly we hope that over the long-term, but we don't think this will be a short term solution. Over the long term, we will be able to recover, first of all, some of our accounts receivable, but most importantly, our container and that would possibly allow us to minimize our losses. What we have done right now is, we have been conservative and we have taken the hit, so to speak, so that we can really recognize it fully in our books and focus completely on trying to minimize our losses going forward.

Okay. That's helpful. And then just thinking about, in a low CapEx environment and it's a high cash flow business, just wondering how you think about, what do you do with that cash flow? Do you pay down debt and delver the balance sheet? Or do you find other uses for it?

We are finding that a good allocation of the cash is towards CapEx so long as that CapEx is at attractive yields. So right now, that is taking much of our cash use because of those [indiscernible] that have risen in, for example, Q2. On ongoing basis, we will certainly assess what's the best use our cash flow. Right now, we like the proposition provided by CapEx. But again, assuming that it hits the yields and is indeed attractive for us, has good tenure as well and good credit also.

Okay. And then just per diems and container prices. You mentioned container prices are pretty low for this time of year. I think $1,750 is the price you mentioned. And I guess I have heard from other container lessors that it's difficult for factories to make money at that level. So just wondering, do the per diems reflect that low price of containers? And then two, you mentioned I think the IRRs or the returns are still double digits. I just want to confirm that.

Yes. I think you know I like to draw a distinction between the larger replacement, the deal that we have been able to secure essentially without going too much into detail. We secured those deals very early in the year. We took advantage of the manufacturing price that dips very briefly very early in the year and there was a unique opportunity. I feel we have several unique opportunities there for us to be able to invest and achieve all double digit returns while still providing our customer with a very attractive deal.If you look at the market the way it is today, there has been very, very few open tenders. And it is fair to say that the rates have been unattractive and we have, for that matter, stayed out of those open tenders and we basically are sitting and waiting with our existing inventory which we believe is limited and perfectly adequate for us to maintain waiting for the market to pick up. But the cash-on-cash yields have certainly dropped. But again, there has been so few deals that it's hard to tell that this would be fully representative of a normal market environment.

Okay. All right. Thanks for that.

[Operator Instructions]. Our next question comes from Michael Brown with KBW. Please proceed with your question.

Hi. Good afternoon guys.

Hi Michael.

Hi Michael.

So I just wanted to start off on CapEx again. I saw that strong first half, $640 million and it sounds like a more tepid outlook going forward. I appreciate your commentary about the lower expectation going forward. But I guess any color that you could provide on your expectation for the full year? And it sounds like you have had some benefits from some larger replacement deals coming through. Are those kind of one-offs? Or should we expect that more of those could come through? Thanks.

At this point in time, we don't expect more of those to come through. We are very much thinking that we are not going to see a typical peak season. What we have seen over the last, shall I say, three, four weeks is what I would call a little bubbling in the market. There has been a little bit of activity. We have leased out some depot units. I think that some of our competitors have leased out some depot units. Nothing dramatic, but it's still something positive that indicate that volumes have increased a little bit.I think at the same time you see that ocean freight rates on Asia/Europe and Asia/North America have also gone up over the last few weeks. So there is a little bit moving. Now we don't expect this surge to be a very major surge or a typical surge as we have seen in the previous year. So we don't anticipate that there will be many opportunities for us to implement new CapEx or invest more into container.I think the big question for us is really what happens for the fourth quarter and this point in time we remain optimistic about the fourth quarter. We feel that the U.S. consumer demand remains strong. We feel that demand will still be there for the end of the year holiday which are driving the demand and then typically we also have then to build up to the Chinese lunar new year that are taking place in the last quarter.But I think more fundamentally, we have now been in a fairly slow market for almost nine months or 10 months. Every month that passes means that shipping lines will reach a level where they have to start replacing some of the older containers they have in their fleet. So we remain hopeful that towards the end of the year we will see a recovery in demand to normal levels.

Great. Thanks. And then just a follow-up on the CapEx. The $440 million this quarter, was that really to support one customer or a couple of customers? I am trying to get kind of an idea of the activity this quarter. Thanks.

Well, there are several customers in there. One larger one was involved, of course, but there are several in there.

Great. Thanks. And then last quarter you guys gave guidance on the lease rental income. You guided to it essentially being kind of flat in the second quarter and that's really where you did come in this quarter. So I was actually wondering if you had some guidance for the third quarter?

We are thinking that third quarter could be flat compared to Q2 and the reason for that is we did put some CapEx work in Q2. But as we mentioned earlier, there is that normal attrition that every fleet experiences. So we are selling boxes at good prices, but that will bring down lease rental income a bit. However, that would be buffered by the CapEx that we put in place. So potentially it could be a bit of a flattening of lease rental income, if you were to look at Q3 versus Q2.

Great. Thank you for taking my questions.

Thank you.

Thank you. At this time, I would like to turn the conference back over to Olivier Ghesquiere for closing comments.

Thank you for taking the time to listen to us today and I look forward to updating everyone on our progress during the next call. Thank you.

'This concludes today's teleconference. You may disconnect your lines this time and thank you for your participation.