TRITON INTERNATIONAL LTD MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)
The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" as discussed in our Annual Report on Form 10-K filed for the fiscal year endedDecember 31, 2021 with theSEC onFebruary 15, 2022 (the "Form 10-K"), in this Report on Form 10-Q and in any other Form 10-Q filed or to be filed by us, and in other documents we file with theSEC from time to time. Our actual results may differ materially from those contained in or implied by any forward-looking statements.
Our company
Triton International Limited ("Triton", "we", "our" or the "Company") is the world's largest lessor of intermodal containers. Intermodal containers are large, standardized steel boxes used to transport freight by ship, rail or truck. Because of the handling efficiencies they provide, intermodal containers are the primary means by which many goods and materials are shipped internationally. We also lease chassis, which are used for the transportation of containers. We operate our business in one industry, intermodal transportation equipment, and have two business segments, which also represent our reporting segments: •Equipment leasing - we own, lease and ultimately dispose of containers and chassis from our lease fleet. •Equipment trading - we purchase containers from shipping line customers, and other sellers of containers, and resell these containers to container retailers and users of containers for storage or one-way shipment.
Operations
Our consolidated operations include the acquisition, leasing, re-leasing and subsequent sale of multiple types of intermodal containers and chassis. As ofMarch 31, 2022 , our total fleet consisted of 4.3 million containers and chassis, representing 7.3 million twenty-foot equivalent units ("TEU") or 8.0 million cost equivalent units ("CEU"). We have an extensive global presence, offering leasing services through 20 offices and 3 independent agencies located in 16 countries and 380 third-party owned and operated depot facilities in 46 countries as ofMarch 31, 2022 . Our primary customers include the world's largest container shipping lines. For the three months endedMarch 31, 2022 , our twenty largest customers accounted for 85% of our lease billings, our five largest customers accounted for 61% of our lease billings, and our three largest customers accounted for 19%, 19%, and 10% of our lease billings. The most important driver of profitability in our business is the extent to which leasing revenues, which are driven by our owned equipment fleet size, utilization and average lease rates, exceed our ownership and operating costs. Our profitability is also driven by the gains or losses we realize on the sale of used containers and the margins generated from trading new and used containers. We lease five types of equipment: (1) dry containers, which are used for general cargo such as manufactured component parts, consumer staples, electronics and apparel, (2) refrigerated containers, which are used for perishable items such as fresh and frozen foods, (3) special containers, which are used for heavy and over-sized cargo such as marble slabs, building products and machinery, (4) tank containers, which are used to transport bulk liquid products such as chemicals, and (5) chassis, which are used for the transportation of containers on the road. Our in-house equipment sales group manages the sale process for our used containers and chassis from our equipment leasing fleet and sells used and new containers and chassis acquired from third parties. 21 -------------------------------------------------------------------------------- The following tables summarize our equipment fleet as ofMarch 31, 2022 ,December 31, 2021 andMarch 31, 2021 indicated in units, TEU and CEU. CEU and TEU are standard industry measures of fleet size and are used to measure the quantity of containers that make up our revenue earning assets: Equipment Fleet in Units
Park of equipment in TEU
March 31, 2022 December 31, 2021 March 31, 2021 March 31, 2022 December 31, 2021 March 31, 2021 Dry 3,850,167 3,843,719 3,417,293 6,546,249 6,531,816 5,711,032 Refrigerated 234,274 235,338 232,550 455,261 457,172 450,087 Special 92,184 92,411 94,266 168,687 169,004 171,781 Tank 11,734 11,692 11,339 11,734 11,692 11,339 Chassis 23,711 24,139 24,078 44,272 44,554 43,858 Equipment leasing fleet 4,212,070 4,207,299 3,779,526 7,226,203 7,214,238 6,388,097 Equipment trading fleet 56,161 53,204 60,242 90,090 83,692 93,514 Total 4,268,231 4,260,503 3,839,768 7,316,293 7,297,930 6,481,611 Equipment Fleet in CEU (1) March 31, 2022 December 31, 2021 March 31, 2021 Operating leases 7,250,246 7,291,769 6,892,129 Finance leases 666,690 623,136 297,168 Equipment trading fleet 85,686 81,136 92,570 Total 8,002,622 7,996,041 7,281,867 (1)In the equipment fleet tables above, we have included total fleet count information based on CEU. CEU is a ratio used to convert the actual number of containers in our fleet to a figure based on an estimate for the historical average relative purchase prices of our various equipment types to that of a 20-foot dry container. For example, the CEU ratio for a 40-foot high cube dry container is 1.70, and a 40-foot high cube refrigerated container is 7.50. These factors may differ slightly from CEU ratios used by others in the industry.
The following table summarizes the percentage of our equipment fleet in terms of units and CFU at
Percentage of total Percentage of total
Equipment Type fleet in units fleet in CEU
Dry 90.2 % 71.4 %
Refrigerated 5.4 21.7
Special 2.2 3.0
Tank 0.3 1.2
Chassis 0.6 1.6
Equipment leasing fleet 98.7 98.9
Equipment trading fleet 1.3 1.1
Total 100.0 % 100.0 %
We generally lease our equipment on a per diem basis to our customers under
three types of leases:
•Long-term leases typically have initial contractual terms ranging from five to
eight or more years and provide us with stable cash flow and low transaction
costs by requiring customers to maintain specific units on-hire for the duration
of the lease term. Some of our containers, primarily used containers, are placed
on lifecycle leases which keep the containers on-hire until the end of their
useful life.
•Finance leases are typically structured as full payout leases and provide for a
predictable recurring revenue stream with the lowest cost to the customer as
customers are generally required to retain the equipment for the duration of its
useful life.
•Service leases command a premium per diem rate in exchange for providing
customers with greater operational flexibility by allowing non-scheduled pick-up
and drop-off of units during the lease term.
We also have expired long-term leases whose fixed terms have ended but for which
the related units remain on-hire and for which we continue to receive rental
payments pursuant to the terms of the initial contract. Some leases have
contractual terms that have features reflective of both long-term and service
leases and we classify such leases as either long-term or service leases,
depending upon which features we believe are predominant.
22
--------------------------------------------------------------------------------
The following table summarizes our lease portfolio by lease type, based on CEUs leased at
March 31, 2022 December 31, 2021 March 31, 2021 Long-term leases 72.4 % 72.4 % 74.7 % Finance leases 8.6 % 8.0 % 4.2 % Subtotal 81.0 % 80.4 % 78.9 % Service leases 5.0 % 5.0 % 6.4 % Expired long-term leases, non-sale age (units on hire) 6.9 % 8.4 % 9.0 % Expired long-term leases, sale-age (units on hire) 7.1 % 6.2 % 5.7 % Total 100.0 % 100.0 % 100.0 % Weighted average remaining contractual term in months for long-term and finance leases 61 61 51 Due to our aggressive fleet investment in 2021 and the high cost of these new containers, we placed the vast majority of this equipment on long-term operating and finance leases with an average initial duration of 13 years. To better reflect the impact of these dynamics on our lease portfolio, we have included the following equipment lease portfolio table based on net book value of units on-hire, as ofMarch 31, 2022 ,December 31, 2021 andMarch 31, 2021 : Lease Portfolio by Net Book Value March 31, 2022 December 31, 2021 March 31, 2021 Long-term leases 73.0 % 73.6 % 80.8 % Finance leases 15.0 % 13.8 % 3.0 % Subtotal 88.0 % 87.4 % 83.8 % Service leases 3.7 % 3.5 % 5.4 % Expired long-term leases, non-sale age (units on hire) 4.9 % 6.2 % 7.8 % Expired long-term leases, sale-age (units on hire) 3.4 % 2.9 % 3.0 % Total 100.0 % 100.0 % 100.0 % Weighted average remaining contractual term in months for long-term and finance leases 79 78 58 Operating Performance Our operating and financial performance in the first quarter of 2022 was strong and our profitability increased sharply compared to the first quarter of 2021. In the first quarter, we continued to benefit from constructive market conditions along with the significant operating and financial momentum provided from our aggressive investing and refinancing activity in 2021. Fleet size. As ofMarch 31, 2022 , the net book value of our revenue earning assets was$11.7 billion , an increase of 23.0% compared toMarch 31, 2021 and a decrease of 0.7% compared toDecember 31, 2021 . The increase from last year was primarily due to our$3.6 billion of fleet investment in 2021 to support our customers' sizable demand for new containers as a result of a surge in global containerized trade volumes and operational disruptions creating a shortage of containers. The dollar value of our investments was also driven by very high new container prices. In 2022, our investment in new equipment has been more limited following the rapid growth in the container fleet last year. As ofApril 29, 2022 , we have placed orders for$428.1 million of new containers for delivery in 2022. Utilization. Our average utilization was 99.6% for the quarter endedMarch 31, 2022 , an increase of 0.5% compared to the first quarter of 2021 and flat compared to the fourth quarter of 2021. Our utilization increased steadily during 2021 as we benefited from a very high volume of container pick-ups driven by the aggressive investment in new containers, combined with limited drop-off activity. Our ending utilization as ofMarch 31, 2022 was 99.5% and currently remains at this level. 23 -------------------------------------------------------------------------------- The following tables summarize our equipment fleet utilization for the periods indicated below. Utilization is computed by dividing our total units on lease (in CEU) by the total units in our fleet (in CEU), excluding new units not yet leased and off-hire units designated for sale: Quarter Ended December 31, September 30, June 30, March 31, March 31, 2022 2021 2021 2021 2021 Average Utilization 99.6 % 99.6 % 99.6 % 99.4 % 99.1 % Ending Utilization 99.5 % 99.6 % 99.6 % 99.5 % 99.3 % Average lease rates. Average lease rates for our dry container product line increased by 9.0% in the first quarter of 2022 compared to the first quarter of 2021. The increase in our average dry container lease rates was primarily driven by the addition of new containers with lease rates well above the average rates in our lease portfolio. New container prices and market lease rates were very high throughout 2021 due to the surge in container demand and limited availability of containers. Container prices have decreased from their peak level of nearly$3,900 for a new 20' dry container reached in the third quarter last year, but remain historically high with factories currently quoting just below$3,000 . Similarly, market leasing rates are down from their peak level in 2021, but also remain historically high and well above our portfolio average. Average lease rates for our refrigerated container product line decreased by 3.7% in the first quarter of 2022 compared to the first quarter of 2021. In 2021, we completed a large lease extension transaction for refrigerated containers that lowered the lease rates on expired leases in return for a lease extension covering the remaining useful life of the equipment. We have also been experiencing larger differences in lease rates for older refrigerated containers compared to rates on new equipment, and we expect our average lease rates for refrigerated containers will continue to gradually trend down. The average lease rates for special containers decreased by 0.9% in the first quarter of 2022 compared to the first quarter of 2021 primarily due to a lease extension transaction for a large number of special containers completed in 2021. Interest and Debt Expense. Our average debt balance increased by$2.1 billion , compared to the first quarter of 2021, as we increased borrowings to support the significant growth in our revenue earning assets. Despite an increase in our average debt balance, our interest expense was essentially flat compared to the first quarter of 2021 reflecting a 0.80% decrease in our effective interest rate to 2.50%. This decrease was driven by our extensive refinancing activity over the last two years as we took advantage of the low interest rate environment and the upgrade of our corporate credit ratings to investment grade. The recent rise in interest rates may lead to an increase in our effective interest rate; however, we remain mostly insulated, as 87% of our debt portfolio is comprised of either fixed rate debt or hedged floating-rate debt as ofMarch 31, 2022 . Equipment disposals. Disposal gains continue to be extraordinarily high reflecting historically high used container sale prices. During 2021, the strong demand for containers, record high prices for new containers, and limited availability of used containers for sale drove used container sales prices to record levels. In the first quarter of 2022, selling prices decreased slightly from their peak levels in 2021, although they remained historically high due to continued high new container prices, lingering logistical bottlenecks, low container drop-off volumes and limited availability of used containers. We expect used container sales prices will likely normalize further over the course of 2022, and consequently our disposal gains are also likely to decrease from the first quarter levels.
Cash and capital resources
Our principal sources of liquidity are cash flows provided by operating activities, proceeds from the sale of our leasing equipment, borrowings under our credit facilities and proceeds from other financing activities. Our principal uses of cash include capital expenditures, debt service, dividends, and share repurchases. For the trailing twelve months endedMarch 31, 2022 , cash provided by operating activities, together with the proceeds from the sale of our leasing equipment, was$1,723.7 million . In addition, as ofMarch 31, 2022 , we had$72.0 million of unrestricted cash and cash equivalents and$2,089.0 million of borrowing capacity remaining under our existing credit facilities. 24 -------------------------------------------------------------------------------- As ofMarch 31, 2022 , our cash commitments in the next twelve months include$463.0 million of scheduled principal payments on our existing debt facilities and$316.3 million of committed but unpaid capital expenditures, primarily for the purchase of equipment.
We believe that cash generated from operating activities, existing liquidity, proceeds from the sale of our rental equipment and availability under our credit facilities will be sufficient to meet our obligations over the next twelve months and beyond.
Capital activity
In the three months ended
During the three months endedMarch 31, 2022 , the Company repurchased a total of 1.3 million common shares at an average price per share of$63.74 for a total cost of$80.2 million under its share repurchase program.
For more information, please refer to Note 5 – “Other equity matters” of the Notes to the unaudited consolidated financial statements.
Debt activity
During the first quarter, the Company completed a$600.0 million 3.25% senior notes offering with a maturity date ofMarch 15, 2032 . In addition, the Company exercised an early buyout option and paid$14.9 million of its remaining finance lease obligation. Credit Ratings Our investment-grade corporate and long-term debt credit ratings enable us to lower our cost of funds and broaden our access to attractively priced capital. While a ratings downgrade would not result in a default under any of our debt agreements, it could adversely affect our ability to issue debt and obtain new financings, or renew existing financings, and it would increase the cost of our financings. The Company's long-term debt and corporate ratings of BBB- from bothS&P Global Ratings and Fitch Ratings have not changed sinceDecember 31, 2021 .
Debt agreements
AtMarch 31, 2022 our outstanding indebtedness was comprised of the following (amounts in millions): March 31, 2022 Outstanding Maximum Borrowings Borrowing Level Secured Debt Financings Asset-backed securitization term notes$ 3,710.1 $ 3,710.1 Asset-backed securitization warehouse 202.0 1,125.0 Total secured debt financings 3,912.1 4,835.1 Unsecured Debt Financings Senior notes 2,900.0 2,900.0 Term loan facilities 1,152.0 1,152.0 Revolving credit facilities 834.0 2,000.0 Total unsecured debt financings 4,886.0 6,052.0 Unamortized debt costs (65.1) - Unamortized debt premiums & discounts (5.6) - Debt, net of unamortized costs$ 8,727.4 $ 10,887.1 25
-------------------------------------------------------------------------------- The maximum borrowing levels depicted in the table above may not reflect the actual availability under all of the credit facilities. Certain of these facilities are governed by either borrowing bases or an unencumbered asset test that limits borrowing capacity. As ofMarch 31, 2022 , the availability under these credit facilities without adding additional assets was$1,095.3 million . As ofMarch 31, 2022 , we had a combined$7,639.1 million of total debt on facilities with fixed interest rates or floating interest rates that have been synthetically fixed through interest rate swap contracts. This accounts for 87% of total debt.
Under the terms of certain loan agreements, we are required to maintain certain amounts in restricted cash accounts. From
For more information on our debt, please refer to Note 7 – “Debt” in the Notes to the Unaudited Consolidated Financial Statements.
Debt commitments
We are subject to certain financial covenants related to leverage and interest coverage as defined in our debt agreements. Failure to comply with these covenants could result in a default under the related credit agreements and the acceleration of our outstanding debt if we were unable to obtain a waiver from the creditors. As ofMarch 31, 2022 , we were in compliance with all such covenants. Cash Flow
The following table presents certain cash flow information for the three months ended
Three months completed
2022 2021 Net cash provided by (used in) operating activities$ 398,670 $ 300,988 Net cash provided by (used in) investing activities$ (453,888) $ (525,684) Net cash provided by (used in) financing activities$ 18,080 $ 459,036 Operating Activities Net cash provided by operating activities increased by$97.7 million to$398.7 million in the three months endedMarch 31, 2022 compared to$301.0 million in the same period in 2021, primarily due to increased profitability. In addition, there was an increase in cash collections related to leases with uneven payment terms and an increase in cash collections on finance leases due to an increase in our finance lease portfolio.
Investing activities
Net cash used in investing activities was$453.9 million in the three months endedMarch 31, 2022 compared to$525.7 million in the same period in 2021. The change was primarily due to a$68.2 million decrease in equipment purchases.
Fundraising activities
Net cash provided by financing activities was$18.1 million in the three months endedMarch 31, 2022 , compared to$459.0 million in the same period in 2021. The change was primarily due to a$359.7 million decrease in net borrowings. In addition, we paid$81.7 million for share repurchases in the first quarter of 2022. 26
--------------------------------------------------------------------------------
Operating results
The following table summarizes our comparative operating results for the three months ended
Three months completed
2022 2021 Variance Leasing revenues: Operating leases$ 388,945 $ 339,794 $ 49,151 Finance leases 28,143 6,949 21,194 Total leasing revenues 417,088 346,743 70,345 Equipment trading revenues 34,120 25,945 8,175 Equipment trading expenses (29,979) (17,804) (12,175) Trading margin 4,141 8,141 (4,000) Net gain on sale of leasing equipment 28,969 21,967 7,002 Operating expenses: Depreciation and amortization 160,716 143,307 17,409 Direct operating expenses 6,220 9,370 (3,150) Administrative expenses 21,300 20,921 379 Provision (reversal) for doubtful accounts (27) (2,464) 2,437 Total operating expenses 188,209 171,134 17,075 Operating income (loss) 261,989 205,717 56,272 Other expenses: Interest and debt expense 54,510 54,623 (113) Unrealized (gain) loss on derivative instruments, net (439) - (439) Debt termination expense 36 - 36 Other (income) expense, net (308) (481) 173 Total other expenses 53,799 54,142 (343) Income (loss) before income taxes 208,190 151,575 56,615 Income tax expense (benefit) 13,932 11,737 2,195 Net income (loss)$ 194,258
Less: dividend on preferred shares 13,028 10,513 2,515
Net income (loss) attributable to common shareholders
27 --------------------------------------------------------------------------------
Comparison of the three months ended
Leasing revenues. Per diem revenue represents revenue earned under operating
lease contracts. Fee and ancillary lease revenue represents fees billed for the
pick-up and drop-off of containers in certain geographic locations and billings
of certain reimbursable operating costs such as repair and handling expenses.
Finance lease revenue represents interest income earned under finance lease
contracts. The following table summarizes our leasing revenues for the periods
indicated below (in thousands):
Three Months Ended March 31,
2022 2021 Variance
Leasing revenues:
Operating leases
Per diem revenues $ 377,514 $ 331,252 $ 46,262
Fee and ancillary revenues 11,431 8,542 2,889
Total operating lease revenues 388,945 339,794 49,151
Finance leases 28,143 6,949 21,194
Total leasing revenues $ 417,088 $ 346,743 $ 70,345
Total rental income was
Per diem revenues were$377.5 million for the three months endedMarch 31, 2022 compared to$331.3 million in the same period in 2021, an increase of$46.2 million . The primary reasons for this increase are as follows: •$26.1 million increase due to an increase in the average number of containers on-hire of approximately 0.5 million CEU; and •$18.3 million increase primarily due to an increase in average per diem rates for our dry containers partially offset by a decrease in average per diem rates for our refrigerated and special containers. Fee and ancillary lease revenues were$11.4 million for the three months endedMarch 31, 2022 compared to$8.5 million in the same period in 2021, an increase of$2.9 million , primarily due to an increase in fee revenues related to the repositioning of containers. Finance lease revenues were$28.1 million for the three months endedMarch 31, 2022 compared to$6.9 million in the same period in 2021, an increase of$21.2 million . This increase is primarily due to the addition of$1.5 billion of net finance lease receivable sinceApril 2021 partially offset by the runoff of the existing portfolio. Trading margin. Trading margin was$4.1 million for the three months endedMarch 31, 2022 compared to$8.1 million in the same period in 2021, a decrease of$4.0 million . The decrease was primarily due to a decrease in container sales volumes. Net gain (loss) on sale of leasing equipment. Gain on sale of equipment was$29.0 million for the three months endedMarch 31, 2022 compared to$22.0 million in the same period in 2021, an increase of$7.0 million . The increase was primarily due to a 36.1% increase in the average sale price of our used dry containers, partially offset by a 29.4% decrease in sales volumes due to our limited inventory of containers available for sale. Depreciation and amortization. Depreciation and amortization was$160.7 million for the three months endedMarch 31, 2022 compared to$143.3 million in the same period in 2021, an increase of$17.4 million . The primary reasons for the increase are as follows: •$26.5 million increase due to the increased size of our container fleet; partially offset by •$7.7 million decrease due to an increase in the number of containers that have become fully depreciated. Direct operating expenses. Direct operating expenses primarily consist of our costs to repair equipment returned off lease, store equipment when it is not on lease and reposition equipment from locations with weak leasing demand. Direct operating expenses were$6.2 million for the three months endedMarch 31, 2022 compared to$9.4 million in the same period in 2021, a decrease of$3.2 million . The primary reasons for the decrease are as follows: •$2.0 million decrease in repair, handling and repositioning expense primarily due to timing of drop-off activity; and •$0.9 million decrease in storage expense resulting from a decrease in the number of idle units. 28 -------------------------------------------------------------------------------- Administrative expenses. Administrative expenses were$21.3 million for the three months endedMarch 31, 2022 compared to$20.9 million in the same period in 2021, an increase of$0.4 million . Provision (reversal) for doubtful accounts. Reversal for doubtful accounts was immaterial for the three months endedMarch 31, 2022 , compared to$2.5 million in the same period in 2021. We reversed reserves in the first quarter of 2021 which were originally recorded in 2020 against a mid-sized customer receivable. Interest and debt expense. Interest and debt expense was$54.5 million for the three months endedMarch 31, 2022 , compared to$54.6 million in the same period in 2021, a decrease of$0.1 million . The primary reasons for the decrease are as follows: •$17.4 million decrease due to a decrease in the average effective interest rate to 2.50% from 3.30%; partially offset by •$17.3 million increase due to an increase in the average debt balance of$2.1 billion . Income taxes. Income tax expense was$13.9 million for the three months endedMarch 31, 2022 compared to$11.7 million in the same period in 2021, an increase of$2.2 million . The increase in income tax expense was primarily the result of an increase in pre-tax income partially offset by a decrease in the portion of income generated in higher tax jurisdictions in the three months endedMarch 31, 2022 . 29 --------------------------------------------------------------------------------
Contractual obligations
We are party to various operating and finance leases and are obligated to make payments related to our borrowings. We are also obligated under various commercial commitments, including payment obligations to our equipment manufacturers. Our equipment manufacturer obligations are in the form of conventional accounts payable, and are satisfied by cash flows from operations and financing activities.
The following table summarizes our contractual commitments and obligations as of
Contractual Obligations by Period
2027 and
Contractual Obligations: Total Remaining 2022 2023 2024 2025 2026 thereafter
(dollars in millions)
Main debt securities
$ 2,982.9 Interest on debt obligations(1) 1,077.3 159.9 196.8 169.3 149.0 119.4 282.9 Operating leases (mainly facilities) 5.7 2.7 2.3 0.6 0.1 - - Purchase obligations: Equipment purchases payable 56.8 56.8 - - - - - Equipment purchase commitments 259.5 259.5 - - - - -
Total contractual obligations
(1) Amounts include actual interest for fixed rate debt, estimated interest for floating rate debt and interest rate swaps that are in a callable position based on
Critical Accounting Estimates Our consolidated financial statements have been prepared in conformity withU.S. GAAP, which requires us to make estimates and assumptions that affect the amounts and disclosures reported in the consolidated financial statements and accompanying notes. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. For a discussion of our critical accounting estimates, see Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Annual Report on Form 10-K. There have been no significant changes to our critical accounting estimates since our 2021 Annual Report on Form 10-K. 30
————————————————– ——————————
© Edgar Online, source
