Triton International Limited — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; unaudited. Triton leases and sells intermodal transportation equipment, primarily maritime containers. It reported equipment leasing and equipment trading segments.
Financial and operating performance
- Revenue: Leasing revenue was $315.1 million, up $49.5 million (18.6%) year over year. Equipment trading revenue was $13.4 million; trading margin was $3.0 million, versus $0.4 million a year earlier. Net gain on sales of leasing equipment was $9.2 million, versus $5.2 million.
- Profit: Operating income was $166.4 million, versus $105.3 million. Net income was $82.9 million, versus $36.3 million; net income attributable to shareholders was $80.9 million, versus $34.6 million. Diluted EPS was $1.00, versus $0.47. The quarterly dividend paid was $0.45 per share.
- Cash flow: Operating cash flow was $231.5 million, versus $162.9 million. Investing cash use was $205.0 million, including $258.7 million of leasing equipment purchases and finance lease investments, partly offset by equipment sale proceeds. Financing cash use was $5.7 million. Cash, cash equivalents and restricted cash totaled $247.0 million at quarter-end, including $118.3 million of unrestricted cash.
- Assets and debt: Total assets were $9.68 billion. Debt, net of debt costs and fair-value adjustments, was $6.95 billion, versus $6.91 billion at year-end 2017; gross debt outstanding was $7.02 billion. Interest and debt expense rose to $75.1 million from $63.5 million, reflecting higher average debt and interest rates. The contractual weighted-average rate on total debt, including swaps, was 4.16%.
- Liquidity and commitments: Restricted cash was $128.7 million. The filing reports approximately $458.9 million of actual facility availability at March 31; it also cites $1.5 billion of “additional borrowing capacity” in its 12-month liquidity discussion. Scheduled principal payments over the next 12 months were stated as $756.5 million, and committed unpaid capital expenditures as $579.2 million. Management said available sources should be sufficient to meet obligations over the next 12 months.
Material changes and management commentary
- Leasing revenue growth was driven principally by more containers on hire, higher average per-diem rates and lower lease-intangible amortization. Average utilization increased to 98.6% from 95.3% in Q1 2017; current utilization was 98.8%.
- Average dry-container lease rates rose 6.7% year over year; refrigerated-container rates fell 4.0%, while special-container rates were flat. Average used dry-container sale prices increased 43.7%, but sales volume declined 23.3%.
- Direct operating expenses declined by $10.9 million, mainly due to fewer container drop-offs and lower storage, repair and handling costs. Depreciation and amortization rose $12.6 million as the depreciable fleet expanded.
- Debt expense increased $11.6 million; management attributed the increase to a $528 million rise in average debt and an increase in the average effective interest rate to 4.31% from 3.94%. The effective tax rate decreased to 11.2% from 16.4%, primarily following the U.S. federal corporate tax-rate reduction.
- Management described container market conditions as favorable, with tight supply and demand, low used-container inventories and industry expectations for containerized trade growth around 5% in 2018. It expected utilization to remain historically high, while acknowledging the balance could moderate. As of May 3, Triton had invested $875.1 million in new containers for 2018 delivery.
Risks, contingencies and notable items
- Customer credit risk remains elevated because shipping lines face financial pressure, high debt and vessel overcapacity. CMA CGM and MSC accounted for approximately 20% and 14% of Q1 lease billings, respectively; the 20 largest customers represented 85%. Triton said its current credit insurance provides materially less protection than its former coverage.
- About 83.6% of total debt was fixed-rate or synthetically fixed through swaps. A 100-basis-point increase in rates on unhedged floating-rate debt would add approximately $11.2 million of interest expense over 12 months. The company was in compliance with its debt covenants at quarter-end.
- Container equipment purchase commitments totaled $453.2 million payable in 2018. Legal and regulatory proceedings arose in the ordinary course; management did not expect them to have a material effect, based on information then available.
- After quarter-end, Triton recorded an approximately $21 million gain from a property sale completed April 20. On May 2, the board declared a $0.52-per-share dividend payable June 22. On May 8, the company increased one revolving facility’s maximum capacity by $100 million to $1.125 billion.
- No specific earnings or financial guidance was provided. Forward-looking statements are subject to the risks described in the filing and the company’s 2017 Form 10-K.
Important facts for investors to verify
- Reconcile the filing’s $458.9 million actual facility availability with its separate $1.5 billion additional-capacity statement, and assess borrowing-base restrictions.
- Review near-term maturities and liquidity against the stated $756.5 million of next-12-month principal payments and $579.2 million of committed unpaid capital expenditures.
- Track shipping-line customer credit quality, concentration and the reduced scope of credit insurance.
- Monitor utilization, dry and refrigerated lease-rate trends, equipment prices and the return on planned fleet investment.
- Assess exposure to floating rates, debt costs and refinancing needs; the filing lists debt maturities beginning in 2018.