Triton International Limited — Q1 2021 Form 10-Q
Business context and reporting period. Triton leases intermodal equipment, primarily maritime containers, and also trades containers. This unaudited report covers the three months ended March 31, 2021, compared with Q1 2020. Triton reported a fleet of 3.84 million containers and chassis, or 7.28 million cost equivalent units (CEU), at quarter-end.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 / prior-period comparison |
|---|---|---|
| Operating lease revenue | $339.8 million | $312.8 million |
| Total leasing revenue | $346.7 million | $321.5 million |
| Equipment trading revenue / margin | $25.9 million / $8.1 million | $15.4 million / $1.9 million |
| Gain on sale of leasing equipment | $22.0 million | $4.1 million |
| Operating income | $205.7 million | $148.0 million |
| Net income | $139.8 million | $77.0 million |
| Net income attributable to common shareholders / diluted EPS | $129.3 million / $1.92 | $67.2 million / $0.94 |
| Net cash from operating activities | $301.0 million | $198.0 million |
| Net cash used in investing activities | $525.7 million | $13.1 million |
| Net cash from financing activities | $459.0 million | $166.8 million |
Interest and debt expense fell to $54.6 million from $69.0 million, primarily as the average effective interest rate declined to 3.30% from 4.19%. Depreciation and amortization was $143.3 million. The filing does not present a consolidated profit-margin measure.
At March 31, 2021, total assets were $10.49 billion and shareholders’ equity was $2.72 billion. Cash and cash equivalents were $233.1 million, with an additional $153.3 million of restricted cash. Gross debt outstanding was $7.0 billion ($6.92 billion net carrying value), versus $6.44 billion gross at December 31, 2020. Approximately 97% of debt was fixed-rate or hedged; borrowing availability under credit facilities without adding collateral was about $828.8 million. Triton was in compliance with its debt covenants.
Material changes and operating trends
- Management attributed stronger results to the rebound in containerized trade and a worldwide container shortage that continued into Q1. Average fleet utilization rose to 99.1%, from 95.4% in Q1 2020; quarter-end utilization was 99.3%.
- Operating lease revenue growth primarily reflected more units on hire. Average dry-container lease rates increased 1.0% year over year, while refrigerated-container rates fell 4.8% and special-container rates were flat.
- Used dry-container sale prices increased 90.2% year over year, lifting disposal gains, but dry-container sales volume declined 47.2%. Equipment trading margin also improved on higher selling prices.
- Cash purchases of leasing equipment and finance-lease investments rose to $579.2 million from $62.4 million. Management said higher purchases supported strong demand. Equipment purchases payable were $342.4 million at quarter-end.
- Direct operating expenses declined to $9.4 million from $23.2 million, mainly due to lower storage costs and reduced repair and handling activity. The doubtful-account line was a $2.5 million reversal, versus a $4.3 million provision in Q1 2020.
Outlook, risks, and notable items
- Through April 23, Triton had purchased approximately $2.6 billion of new containers for 2021 delivery; $702.6 million was accepted in Q1. Management said most were already committed to leases and expected existing orders to result in asset growth close to 20% in 2021.
- Management expected dry-container lease rates to continue rising if current container prices and market lease rates persisted. It expected refrigerated-container average rates to trend down gradually and disposal volumes and related gains to decrease because of limited drop-offs. These expectations are subject to market conditions.
- Management believed operating cash flow, cash, equipment-sale proceeds, and facility availability would meet obligations over the next 12 months. Disclosed near-term commitments include $771.4 million of scheduled debt principal and $1.741 billion of committed but unpaid capital expenditures. The contractual-obligations table separately lists $342.4 million payable for equipment already purchased and $1.3986 billion of equipment purchase commitments, all due in 2021.
- Key risks include COVID-19 and trade or demand reversals, container leasing rates and utilization, customer defaults and concentration, used-equipment prices, access to capital, and debt restrictions. The 20 largest customers represented 86% of lease billings; the three largest represented 21%, 14%, and 10%. One customer accounted for 77% of the finance-lease portfolio.
- On April 15, 2021, Triton completed a $600 million senior secured bond offering at 2.05%, maturing in 2026. On April 27, the board declared a $0.57-per-share common dividend and the scheduled preferred dividends. Cumulative unpaid preferred dividends were $1.8 million at quarter-end.
- Management reported no material expected liability from pending ordinary-course legal matters and concluded disclosure controls were effective. The filing cautions that actual results may differ materially from forward-looking statements.
Important facts for investors to verify
- Whether container demand, near-full utilization, and elevated leasing rates persist, and how quickly new fleet capacity is placed on lease.
- Whether used-container prices and disposal gains remain elevated despite lower drop-off and sales volumes.
- How committed equipment spending and scheduled debt payments will be funded, and the actual borrowing availability after borrowing-base requirements.
- Customer concentration and credit exposure, especially the single customer representing 77% of the finance-lease portfolio.
- The effect of rising rates on the unhedged debt balance; management estimated a 100-basis-point increase would add about $1.5 million of interest expense over the next 12 months.