Triton International Limited — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Triton leases intermodal transportation equipment, primarily maritime containers, and also trades equipment. Results are unaudited and compared with Q1 2019.
Financial performance and position
| Metric | Q1 2020 / March 31, 2020 | Prior comparable period / year-end |
|---|---|---|
| Operating-lease revenue | $312.8 million | $330.4 million |
| Finance-lease revenue | $8.7 million | $10.4 million |
| Total leasing revenue | $321.5 million | $340.9 million |
| Equipment trading margin | $1.9 million | $3.6 million |
| Gain on sale of leasing equipment | $4.1 million | $8.5 million |
| Operating income | $148.0 million | $183.5 million |
| Interest and debt expense | $69.0 million | $83.5 million |
| Net income | $77.0 million | $92.8 million |
| Net income attributable to common shareholders | $67.2 million; diluted EPS $0.94 | $91.9 million; diluted EPS $1.17 |
| Operating cash flow | $198.0 million | $295.7 million |
| Cash and cash equivalents | $417.6 million | $62.3 million at December 31, 2019 |
| Restricted cash | $103.0 million | $106.7 million at December 31, 2019 |
| Debt outstanding | $6.789 billion gross; $6.741 billion net of unamortized items | $6.684 billion gross at December 31, 2019 |
| Shareholders’ equity | $2.550 billion | $2.532 billion at December 31, 2019 |
Average fleet utilization was 95.4%, versus 97.7% in Q1 2019. The fleet totaled 6.8 million cost equivalent units at quarter-end. About 83% of debt was fixed-rate or hedged; total debt’s weighted average rate, including hedges, was 3.78%. A 100-basis-point rise on unhedged debt was estimated to increase interest expense by approximately $11.7 million over the next 12 months.
Changes versus Q1 2019
- Total leasing revenue declined $19.4 million, reflecting fewer average units on-hire and lower average per diem rates, partly offset by lower lease-intangible amortization and contracts reclassified from finance to operating leases.
- Operating income fell $35.4 million and net income fell $15.8 million. Lower gains on equipment sales, lower trading margin, increased direct operating costs and a $4.3 million doubtful-account provision weighed on results. Lower interest expense ($14.5 million less) partly offset the decline.
- Used dry-container disposal volume rose 22.6%, but average selling prices fell 10.4%. The company reported that selling prices remained above residual values at quarter-end.
- Operating cash flow decreased $97.8 million, largely due to cash collateral posted for interest-rate swaps and timing of receivable and payable collections, as well as reduced profitability.
- Other comprehensive loss was $119.0 million, primarily reflecting a $120.1 million after-tax change in cash-flow hedges. This drove comprehensive income attributable to common shareholders to a loss of $51.8 million despite positive net income.
Liquidity, outlook, risks and contingencies
- Management said cash, operating cash flow, equipment-sale proceeds and borrowing availability should be sufficient to meet obligations for the next 12 months. It reported $1.3125 billion of additional borrowing capacity under current facilities; separately, availability under the ABS warehouse and revolver without adding container assets to borrowing bases was approximately $515.8 million.
- The company drew $350 million on a revolver in March as a precaution against COVID-19-related business and market uncertainty. Next-12-month cash commitments included $827.2 million of scheduled debt principal and $163.0 million of committed but unpaid capital expenditures.
- COVID-19 had reduced container demand and global trade. Management reported utilization had weakened since February and expected demand to remain pressured while economic activity and trade volumes were weak. It warned the pandemic could materially affect customer credit, lease rates, equipment sales, operations, liquidity and covenant compliance; the magnitude and duration were uncertain.
- Customer credit risk was elevated: a $3.9 million reserve was established for one mid-sized customer with lengthy payment delays, and some customers sought extended payment terms. The top two customers represented 36% of Q1 lease billings; the top 20 represented 85%.
- The company was in compliance with debt covenants at March 31, 2020. Management expected ordinary-course legal proceedings not to have a material effect, based on information then available. Equipment purchase commitments were $133.9 million, payable in 2020.
- No quantitative earnings or utilization guidance was provided. The board declared a $0.52-per-common-share dividend in April for payment in June and increased the repurchase authorization to $200 million.
Important facts for investors to verify
- How the pandemic affected customer collections, utilization, lease rates and credit reserves after quarter-end, particularly among major shipping-line customers.
- What borrowing capacity is practically available under asset-based borrowing limits, and whether covenant headroom remains adequate under stress.
- The duration and cash-flow consequences of the large negative hedge valuation recorded in other comprehensive income, including future collateral requirements.
- Whether equipment-sale prices, fleet investment levels and the common and preferred dividends remain sustainable as trade conditions evolve.