Triton International Limited — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; interim financial statements are unaudited. Triton leases intermodal equipment, primarily maritime containers, and also trades containers. The filing describes Triton as the world’s largest intermodal-container lessor.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total leasing revenue | $397.7 million | $417.1 million | Down $19.4 million |
| Equipment trading margin | $1.1 million | $4.1 million | Down $3.0 million |
| Gain on sale of leasing equipment | $15.5 million | $29.0 million | Down $13.5 million |
| Operating income | $221.5 million | $262.0 million | Down $40.4 million |
| Net income | $149.8 million | $194.3 million | Down $44.4 million |
| Net income attributable to common shareholders | $136.8 million | $181.2 million | Down $44.4 million |
| Basic / diluted EPS | $2.45 / $2.44 | $2.79 / $2.78 | Lower year over year |
| Cash dividends per common share | $0.70 | $0.65 | Higher year over year |
Total revenue, including equipment trading revenue, was $416.8 million, versus $451.2 million a year earlier. Lower per diem leasing revenue reflected approximately 0.5 million fewer average CEU on-hire. Lower used-container selling prices reduced trading margins and disposal gains. Direct operating expenses increased to $23.2 million from $6.2 million, mainly from higher storage, repair and handling costs associated with more idle units and redeliveries. Interest and debt expense rose to $58.8 million from $54.5 million as higher rates outweighed the effect of lower average debt. The effective tax rate was 8.0%, compared with 6.7%.
Cash flow, debt and liquidity
- Operating cash flow was $302.8 million, down from $398.7 million. Investing activities provided $52.3 million, versus $453.9 million used in the prior-year quarter, primarily because equipment purchases fell by $475.7 million. Financing activities used $345.5 million, compared with $18.1 million provided in Q1 2022.
- Cash, cash equivalents and restricted cash totaled $195.9 million at quarter-end, including $92.8 million unrestricted cash and $103.0 million restricted cash.
- Gross debt was $8.0 billion; debt net of unamortized costs and discounts was $7.9 billion. Approximately 88% of debt was fixed-rate or hedged. The weighted average rate on total debt, including hedges, was 2.84% at March 31; the filing estimates a 100-basis-point increase on unhedged debt would add about $7.4 million to interest expense over 12 months.
- The company reported compliance with all financial covenants. It stated that liquidity sources would be sufficient for obligations over the next 12 months and beyond. The MD&A cites $1.93 billion of remaining borrowing capacity, while the debt discussion reports approximately $1.334 billion available after borrowing-base and unencumbered-asset limitations; the filing does not reconcile these figures clearly in the supplied text.
- Management identified $1,006.8 million of scheduled principal payments and $60.4 million of committed but unpaid capital expenditures over the next 12 months. The contractual-obligations table separately lists $905.1 million of principal remaining in 2023 and $906.8 million in 2024.
Operating trends and material changes
- Average utilization was 97.6% in Q1 2023, down from 98.4% in Q4 2022 and 99.6% in Q1 2022; quarter-end utilization was 97.2%. Management attributed the decline to weak lease demand, increased drop-offs and limited pickups. Current utilization was reported at 97.1%.
- Revenue-earning assets had a net book value of $11.1 billion, down 1.9% from December 31, 2022 and 5.4% from March 31, 2022. The fleet totaled 4.13 million units, or 7.13 million TEU.
- Market conditions remained slow. Dry-container average lease rates declined 0.5% from Q4 2022; refrigerated-container rates were also declining, and management expected them to trend down gradually. Used-container sale prices fell amid lower new-container prices, weaker one-way cargo demand and greater used-container supply.
- Customer concentration is material: the three largest customers represented 20%, 17% and 13% of lease billings; the 20 largest represented 84%. One customer represented 90% of the finance-lease portfolio.
Outlook, transaction and other risks
- The filing provides no quantitative operating or earnings guidance. Management said lease demand remained low and described Q1 performance as strong despite slow market conditions. It reported $98.2 million invested in containers for 2023 delivery through April 25.
- On April 11, 2023, after quarter-end, Triton agreed to be acquired by Brookfield Infrastructure Corporation. Each eligible common share is to receive $68.50 in cash and $16.50 in BIPC shares, subject to a share-price collar and shareholder elections with possible pro rata reductions. Closing was expected in Q4 2023, subject to shareholder, regulatory and other customary conditions. Triton’s preferred shares are expected to remain outstanding and listed.
- Triton suspended its common-share repurchase program after April 6, 2023. Before suspension, it repurchased 1.745 million shares in Q1 for $116.9 million at an average $67.02 per share.
- Merger risks include failure or delay to close, regulatory or shareholder approval, litigation, management distraction, business disruption and uncertainty in the stock consideration’s value. A termination fee of approximately $141.4 million may apply in specified circumstances. The filing also cites demand, lease-rate, customer-credit, used-equipment-price, interest-rate, funding, geopolitical, trade and operational risks.
- Container purchase commitments totaled $40.8 million for 2023. Management did not expect ordinary-course legal proceedings to materially affect results, while noting that unexpected developments could have a material impact.
Important facts for investors to verify
- Merger approval and closing conditions, expected timing, election mechanics, collar terms and the potential termination fee.
- Actual borrowing availability and the timing and refinancing needs for substantial debt maturities.
- Utilization, lease rates, customer concentration and the effect of idle-container storage and redelivery costs.
- Whether used-container prices and disposal gains continue to weaken, and how much earnings depend on equipment-sale gains.
- That share repurchases remain suspended and how the transaction affects common-share and preferred-share holders.