Triton International Limited — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. Triton leases intermodal transportation equipment, primarily containers, and also trades containers. Results are unaudited.
Key financial metrics
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Total leasing revenue | $329.8 million | $281.9 million | $644.9 million | $547.5 million |
| Trading margin | $4.0 million | $1.3 million | $7.0 million | $1.7 million |
| Operating income | $201.0 million | $130.4 million | $367.4 million | $235.7 million |
| Net income | $106.8 million | $48.0 million | $189.6 million | $84.3 million |
| Net income attributable to shareholders | $104.9 million | $45.7 million | $185.8 million | $80.3 million |
| Diluted earnings per share | $1.30 | $0.62 | $2.30 | $1.08 |
Q2 leasing revenue rose 17.0% year over year, primarily from more containers on hire and higher average per diem rates. Six-month operating cash flow was $425.6 million, up from $357.5 million. Investing cash outflow was $743.4 million, mainly reflecting $884.0 million of equipment and finance-lease investment; financing cash inflow was $272.2 million. Cash, cash equivalents and restricted cash totaled $180.6 million at June 30, including $48.1 million unrestricted and $132.4 million restricted.
At June 30, total debt outstanding was $7.35 billion ($7.28 billion net of debt costs and fair-value adjustments), compared with $6.98 billion at December 31, 2017. Total assets were $10.11 billion and total equity was $2.33 billion. The contractual weighted-average debt rate was 4.16%, including swaps. About 82.2% of debt was fixed-rate or synthetically fixed. Management reported compliance with all debt covenants.
Changes versus prior comparable periods
- For Q2, shareholder-attributable net income increased by $59.2 million; for the first half it increased by $105.5 million. Higher leasing revenue, trading margins, equipment-sale gains and lower direct operating costs contributed.
- Q2 and first-half results included a $21.0 million gain on the April sale of an office building. Proceeds were $27.6 million, and were used in part to repay the $18.3 million mortgage balance.
- First-half interest and debt expense increased $19.8 million to $154.1 million, reflecting higher average debt and interest rates. Depreciation and amortization rose $22.4 million, partly due to fleet growth.
- The effective tax rate declined to 13.0% for Q2 and 12.2% for the first half, from 19.3% and 18.1%, respectively, primarily due to the lower U.S. federal tax rate under the Tax Cuts and Jobs Act.
- Average Q2 utilization was 98.8%, versus 96.5% a year earlier. Average dry-container lease rates increased 5.0% year over year; refrigerated rates declined 2.7% and special-container rates were flat. Average used dry-container disposal prices rose 24%.
Outlook, risks and unusual items
- Management described market conditions as favorable, citing solid trade growth, strong container demand, controlled supply and continued strong pickup and new-lease activity at the start of Q3. No quantified full-year earnings or revenue guidance is provided.
- Management expected to benefit from trade growth and increased leasing-company share of new-container purchases. As of August 6, Triton had invested $1.4 billion in containers for 2018 delivery. Refrigerated-container lease rates were expected to continue trending down; dry-container rates could face pressure if market lease rates or new-container prices weaken.
- Management warned that U.S.-China tariffs could disrupt trade and container demand, although it had not observed a noticeable demand impact by the filing. Proposed tariffs could also affect U.S. sales of Chinese-manufactured containers and chassis; pass-through to customers is uncertain.
- Customer credit risk remains elevated given shipping-line industry debt, excess vessel capacity and weak freight-rate conditions. Triton said prior credit-insurance coverage had lapsed and its replacement coverage is more limited and subject to exclusions and other limitations. The two largest customers accounted for 20% and 14% of first-half lease billings.
- Liquidity: management said available resources should cover obligations for the next 12 months. It cited $1,108.5 million of scheduled debt principal payments and $429.4 million of committed but unpaid capital expenditures over that period. The filing separately reports approximately $445.4 million of actual facility availability; this differs from the broader $1,260.0 million “additional borrowing capacity” figure also cited in the liquidity discussion.
- At June 30, equipment purchase commitments were $269.9 million, payable in 2018. Legal proceedings in the ordinary course were not expected to have a material effect, based on information then available.
- Subsequent events: on August 1, the board declared a $0.52-per-share quarterly dividend, extended a term loan maturity to April 2022, and authorized up to $200 million of share repurchases.
Most important facts for investors to verify
- How much of the earnings increase is sustainable operating improvement versus the $21.0 million building gain and stronger equipment-sale gains?
- Whether utilization, leasing rates and container disposal prices remain favorable, particularly for refrigerated equipment and dry leases expiring in 2018.
- Whether tariffs affect trade volumes, container demand, or Triton’s ability to pass on import costs.
- Customer credit quality and concentration, including the limitations of current credit insurance.
- Actual borrowing availability, scheduled debt maturities, committed equipment spending and liquidity after dividends and the new repurchase authorization.