Q3 2020 Triton International Ltd Earnings Call
Good day and welcome to the Triton International limited.
Order 2020, <unk> earnings release conference call all parties.
<unk> expense will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key zero.
Today's presentation, there will be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference over to John Burns. Please go ahead.
Thank you.
Good morning, and thank you for joining us today on today's call. We are here to discuss triton's third quarter 2020 results, which were reported this morning.
Joining me on this morning's call from Triton, It's Brian Sondey CEO.
John O'callahan, our head of global marketing and operations.
Before I turn the call over to Brian I would like to know their prepared remarks will follow in the presentation that can be found in the investors section of our web site under investor presentations.
I'd like to direct you to slide two of that presentation and remind you that todays presentation includes forward looking statements. The plot Triton, Scott do with respect to future events financial performance and industry conditions.
These forward looking statements are subject to various risks and uncertainties Tritton has provided additional information in its reports on file with the FCC concerning factors that could cause actual results to differ materially from those contained in this presentation and we encourage you to review those factors.
In addition, reconciliations of non-GAAP measures to the most directly comparable GAAP financial measures are included in the earnings release and the presentation.
This well he's out of the way I will now turn the call over to Brian.
Thanks, John and welcome to Triton International's third quarter 2020 earnings Conference call.
I'll start with slide three of our presentation.
Great and had an extraordinary third quarter.
We generated a dollar and 14 cents of adjusted net income per share.
An increase of 33% from the second quarter.
And we achieved an annualized return on equity of 15.8%.
The strong upward inflection in our performance was supported by a sharp rebound in global trade.
The magnitude of this rebound we're generally not anticipated.
And our customers have needed to quickly add large numbers of containers to their fleets.
We have provided sizeable immediate solutions for our customers.
Drilling on our deep container supply capacity, an extensive operating capabilities.
And we're very proud to be playing an important role, helping our customers get the global supply chain functioning.
The strong support me provided during the surge will further solidify our position.
The go to container leasing company from most of the world's largest shipping lines.
In addition to leading to a durable increase and triton's profitability.
We were also able to take advantage of low interest rates and strong demand for high quality long duration debt issue.
The issue $2.3 billion they'd be s. notes at an average interest rate of 2.2%.
Most of the proceeds we used to call $1.8 billion of ABS notes with higher rates.
We expect $25 million of annual savings.
We're heading toward the end of the year with substantial operating and financial momentum.
Our customers expect container shortages to last at least through early next year.
And we expect our profitability will increase in the range of 25% from the third to the fourth quarter of 2020.
As announced in our press release, we are increasing our dividend almost 10% this quarter from 52 cents to 57 cents per share.
This reflects the expected durability of our increased cash flow and profitability due to the very large number of containers placed on attractive long term leases.
I'll now hand, the call over to John Kelley, our global head of marketing and operations.
Thank you, Brian turning to slide four.
As Brian mentioned trade volumes rebounded in the third quarter as luck on eastern Europe and the Americas.
I understand its audio reduced vessel capacity on the transpacific, an east West trades sublease takes significant shortages.
Right and secure sizable bookings sensing that should be one clients due to our extensive supply capability and have booked over 500000 to get new production onto attracted long term leases.
200000 to me that these will be absorbed through the fourth quarter.
Our utilization has rebounded to 97.6% as 60 couple try though.
You can try to price to increase $2500 to in part its actions taken by Exterran about not actions to wash like production capacity, but also due to the recent sachin and demand absorbing that Patrick.
The pace and magnitude of the Balkans, you called out to meet demand has also increased sales volumes to record level.
This continues to strike.
Okay estimates Betsy, it's expected to be stronger third quarter GE in part to the changes we've seen in the shipping industry.
That's a reduction in the second quarter stake lots rights, while at the same time fuel prices dropped.
You could read that and the trade volumes and the increasing quite right through the third quarter.
I think like performance is expected to remain strong and the second part of Turkey Trenching.
Oh near 10 credit risk is mitigated by cost much stronger financial performance make.
Major rating agencies have upgraded a number of the world's largest shipping lines.
Optimistic this will be a longer trend improvement in the credit profile of the industry.
Triton's performance has been solid through the topics finds a trend you might see the Navy 2020.
And we were able to meet our cost to our customers demand through the third quarter Oh, good not could be bad.
Our ability to respond so quickly to the market highlights the strength of our business model.
The advantages of our leading market position and how beneficial mystery as to our customers.
Turning to slide five.
Slide five shows the way trade volumes responded very quickly. The fact COOLTRANS and have now exceeded three kind of done at levels that four months running.
Like six go some way to illustrate the impact to the market and Todd I'm Triton's metrics.
On the top right graph the spike in on project to construct a considerable even contracts to pretty good upswings in 2010 and 27 C.
Thanks, Oscar I, just had a build up of a couple of quarters, whereas this time, it's been like a much more constructive time period.
You can see utilization increased in the third quarter, driven by actually I've got to stop it combined bookings of over 800000 to you.
All the deals have a good spread of directions best logistics.
In addition last sentence you got the units.
We placed a much that can be said until the end of the concern is like.
The bottom chart demonstrates the significant bookings of dry containers prudent course.
The little luck is a chart showing neutral these transactions by quarter over the last few years.
With strong activity through 2017, and trying to 18, and finally, a resurgence of dielectric activity at the beginning of the third quarter and 2020.
That's probably represents most of the new drive I can tell you that we have available.
Lower right shows our decorating the chicken tenders in Asia in Asia, and illustrates the shock so definitely industry or the Justice court.
It took three quarters and in 27 teams gets its point not that much.
The majority of the remaining quickly this trade secrets, which lines are now also starting to inquire about.
We had very few fourteens remaining and I got those.
Like so well.
It also helps visualize the pace and magnitude of this recovery.
The graph on the left shows new container production has decreased dramatically of course.
What a damn good better best it's showing that your money, it's fully pops back up.
Okay. The production to continue through the fourth quarter, we factory capacity can be booked which helps explain like box prices have increased whopping well go next to be short months' time.
This is traditionally the smallpox yeah for office.
The graph on the right shows the progression of container pricing as long as the matching the manufacturers make over the input cost and the steel.
Container prices are up strongly over the last few months usually increases both in steel prices and the manufacturers' margins.
Margins reflect the business strength and the demand for container.
Slide eight helps demonstrate why customers financial performance is going to be better than expected.
Yes, she lives or the spot freight rates on the agent you are I'm Transpacific trade times you can see.
You can see like stress significantly Oh.
The bottom line shows fuel prices.
After initially jumping because a good month no second fuel Elliott.
Washington come back down or hobby lobby, where they had been.
Got between hot like Reits like fuel prices is expected to drive a strong line of talk to industry for our customers through the second half Twentytwenty.
Well no actually all the way back to John Burns our CFO.
Thank you John.
Turning to page nine and the.
At this stage, we presented a consolidated financial results.
Adjusted net income for the third quarter was $78.1 million 14, $1.14 cents per share up 32.6% from the second quarter sales.
The strong results represent a return on equity of 50.
10.8%.
Turning to page 10.
Our results in the third quarter reflect the container demand surge in container demand and trade volumes.
Revenue, earning assets declined slightly from the prior quarter and the acceleration of new container orders was more than offset by a jump in container disposal volumes.
Our average utilization climbed 1.1% during the quarter the 96.1%.
Driving a 2% increase in leasing revenue from the prior quarter.
However, our quarter ending utilization jumped 2.6% to 97.4% at September Thirtyth.
And the full benefit of this increase in utilization will be reflected in the fourth quarter financial results.
The increase in utilization also reduced direct operating expenses by $3.6 million.
Container storage and repair expenses dropped as more containers went on hire and less where we delivered and repaired.
[noise] disrupt container demand also drove a large increase in container disposal volumes and prices.
[noise] pushed up combined gain on sales and trading margins Oh by $8 million over the second quarter the over $14 million.
A customer payment performance has remained strong during the quarter and we expect that to continue.
As John noted our shipping line customers financial performance held up much better than expected with most lies reporting solid profitability in the second quarter, several guiding to exceptional performance, but the second half of the year.
Oh share repurchases were limited to 400000 shares in the third quarter.
But our average diluted share count declined by 1.4% from the prior quarter.
Given the significant share repurchases in the second quarter.
And compared to the third quarter last year, our average outstanding shares are down by 6.4%.
Turning to page 11.
We've continued to strengthen our financial position.
Our leverage which we measure with net debt to EBITDA warning assets remains at all time lows at the end of the third quarter and well below historical levels that were in the range of 75%.
In addition to our low leverage you can see on the table on the right we have significant liquidity.
Our strong cash flow.
<unk> cash balances and additional availability under credit facilities.
Gives us liquidity of $2.8 billion.
Well in excess of our major cash obligations over the next 12 months.
On the bottom right graph, we show that we have a well structured debt portfolio.
No significant maturity cliffs.
Enabling us to meet our debt obligations from cash flow, which is shown by the blue line without the need for refinancing for several years.
On the bottom left we show the recent ABS financings completed in the late in the third quarter.
These financings include the largest ever container ABS issuance at the lowest yields.
We issued three deals totaling $2.3 billion and less than one month's time, an average yield of 2.2% and used them.
And used the majority of those proceeds to prepay three existing ABS deals and.
At an average interest rate of 3.8%.
These transactions will reduce their future interest expense.
Approximately $25 million annually and locks in these low rates for many years.
Since we closed the prepayment of the existing ABS notes on September 21st.
The third quarter only includes 10 days of this interest expense benefit.
Turning to page 12.
This page highlights how we've been able to use our strong cash flow to create significant long term value for shareholders.
The graph on the top left shows our cash flow before capital spending.
And you can see the resiliency of our cash flows across market cycles.
The graph on the bottom left shows how our stable cash flows together with the short order cycle for containers enables us to maintain our leverage in a steady range over the long term.
The graph on the right demonstrates how these strong cash flows and our financial stability have enabled us to create significant shareholder value by steadily growing the book value of the business well paying a substantial dividends.
Well I would tell you to Brian for some additional comments.
Thanks, John.
Slide 13 shows the progression of our quarterly adjusted earnings per share and annualized return on equity over the last three years.
You can see the steady growth in our E. P. S. Throughout 2018, as we took advantage of solid trade growth and increased reliance on leasing to grow our fleet and operate at a high level of utilization.
You can also see our compelling investment returns reflected in our high teen return on equity.
You can see that our performance and returns held up well throughout 2019, and the first half of 2020, despite significant macro headwinds from the U.S. trying to trade dispute and called Lockdowns.
The resilience of our business through difficult conditions reflects the strength of our long term lease portfolio.
The rapid adjustment a container supply and demand due to the short order cycle for containers and the <unk>.
And the many advantages Triton enjoys as the scale cost and capability leader in our industry.
On the far right of the chart you can see that we expect our adjusted earnings per share the increase in the range of 25% from the third to the fourth quarter.
In the fourth quarter will benefit from a full period of revenue on the large number of containers placed on higher in the third quarter.
As well as from a full period of interest savings from our ABS refinancing.
We also have over well over 200000 to you of new containers are waiting for pickup.
Most of these containers are just being produced.
I'll now finish the presentation with slide 14.
Great and had an exceptional third quarter and were looking forward to a very strong finish for the year.
In the third quarter, we strong market conditions to drive a significant increase in our performance.
We provided our customers with large critically needed container solutions to help them manage an unexpected surge and trade.
We boosted our utilization well over 97% and.
And locked in over 500000 to you with new containers onto attractive long term leases.
We generated a dollar and 14 cents of adjusted net income per share.
33% increase from the second quarter.
Overall, we reinforced our position as the go to leasing company for most of the world's largest shipping line well also.
Well also moving our profitability to a new higher level.
Market conditions are expected to remain strong at least through early next year.
We expect our operating and financial performance to improve further.
Our key operating metrics are still increasing.
We continue to win a large share of leasing transaction.
And we expect our adjusted net income per share the increase in the range of 25% from the third to the fourth quarter.
We expect the benefits from our long term lease activity and debt refinancings to be durable.
We expect our profitability to remain at a high level in 2021.
We've increased our dividend nearly 10% to 57 cents per share.
I will now open up the call for questions.
Well now begin the question and answer session to ask a question you mean of course Star then one on your Touchtone phone using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.
The first question comes from Ken Hoexter from Bank of America. Please go ahead.
Hey, good morning, John Congrats on the ABS financings and the great rates and seen great great outlook in detail.
And maybe just talk a bit about the that the 350 million you talked about on your your ordering into next year are you seeing peers ramp up maybe talking about the capacity yet at the yards or are they increasing capacity and should we expect kind of this this run to Andr do you see kind of visibility and sustainability given given the constraints in the.
Market.
Yeah sure. Okay. Thanks. Thanks for the question. So I think we disclosed in the press release Weve, you know already ordered 350 million of containers for delivery next year and probably that reflects the fact that capacity for manufacturing has been so constrained this year.
Container manufacturers at the end of 2019 reduced their ship capacity to bring in line that they they container production capacity of their factories with actual demand a and it's just that those restrictions are I couldn't say it does lower capacity levels remained in place as we headed into this the surge in demand in surgeon.
Trade and so whats happened as we've shown in some of the charges that the container you know inventory at the factories has run down to very low levels.
The container manufacturers have started to increase their production volumes by adding hours on the chefs and I think they used to some of the shifts.
And the production capacity is getting back toward a I'd say a normal level of production in normal years, you know, but just given the fact that our inventory and the market inventory is so low we.
Ben I think you know ordering more than we might typically you know for next year production at that this point.
Yeah in terms of where we see the market going as we said we hear from customers that they expect a fairly significant container shortage to remain true.
At least a Chinese new year, which this year is late in the middle of February.
Yeah as it relates to what happens after Chinese new year, if we get deeper into 2021.
That's obviously harder to predict a there there's a lot of macro uncertainty still out there with of course, the cobot pandemic and what that's going to mean, but I'd say for us.
You said a few times, we believe the the things that we've done during this time with a very strong demand and limited container supply that's a benefit to those things are going to be durable and so where you had to some extent it's hard to these days have a crystal ball about what is economic growth going to be in 2021, when its trade growth gonna be again, we haven't heard custom.
You are saying that they expect you know very you know anything negative, but it is of course hard to predict the macro right now, but that said better relates to Triton you know we feel very good heading into next year.
Great and then Ah that's right maybe talk about you know given that tightness, what do you think happens with with lease rates you're are you seeing.
Pricing starting to scale I know you know weve talked about this in the downturn you're protected because of some off long term rates maybe talk about what your exposure is true then you know what what percent of your boxes start to roll over do you have any coming exposure that could benefit from rising rates and do you see rising rates in the market at this point yeah.
So for sure a lease rates are up significantly. This you know over the last few months and that reflects a combination of increased new container prices together with just the strength of demand and the scarcity value for containers.
And so you got it I didn't do the calculation. This morning, but you know that's a market leasing rates for new containers were up well over 50% now compared to where they were say during the second quarter.
It takes time for that to filter its way through our average lease rate you know for existing containers that are in our debt Bose I, we've put a lot of them on higher onto a multiyear we call them lifecycle leases I think John Callahan mentioned this that keeps the container on hire for the rest of his life and they typically have very high Npvs you know, but they don't have you know usually.
They don't follow the market rate or all the way up.
In terms of the new containers you put on lease we've seen I think as we show in our we call. It. The bubble chart you know the the rates we've been getting you know on our new container leases have been going up pretty quickly and you can also see I think we marked where the current market rate is on there which is quite a bit up from where we had been doing deals and even in the third quarter and so clearly that that's all.
All translating.
In terms of our exposure to container lease expirations is actually very small right now.
We you know in the second quarter when times Werent. So good we did a lot of deals where we locked in our containers. A you know those that had been expire and we agreed to certain big customers to limit.
Limit returns on those containers over the next year or two we also typically are pretty aggressive about trying.
You know trying to renew most of our expired leases onto a lifecycle leases for our used equipment and so we actually look forward and have not very much or at risk of expiring and coming off hire for the next year or two and it was also one one of the key reasons why we feel very good about heading into next year almost you know outside of what the macro looks like what are the same time.
As you point out it does to some extent you know limit our ability to push the higher market rates that are out there for new containers, you know into the portfolio of our used containers, but overall I'd say, we feel pretty good to have the protections that we do.
Very helpful. Thanks for the time, Okay. Yeah. Thank you Dennis Kim.
Again, if you have a question. Please press Star then one.
Next question comes from Michael Brown from KBW. Please go ahead.
Hi, good morning, guys.
Well, Michael I, just wanted to yeah, just wanted to follow up on.
Sales and Ken's question there about.
[noise].
When you think about it and think about the opportunities going into next year it sounds like.
Production is just kind of somewhat limited.
There, that's going to probably kind of limit the ability to take advantage of the uptick in the market and so as you think about capital.
Capital allocation against that backdrop, your crude and keep throwing off a lot of excess cash flow here you raised the dividend you're still buying back shares your leverage levels are.
Really historically low levels, so what or how do you think about capital allocation against that backdrop or is it just that the production levels are improving and therefore that will become less of a constraint for you and you can deployed more capital into Capex as you move forward. Thanks.
Yeah, no thanks, Michael and I'd say, a couple of things. So you know one a as I mentioned briefly with the candy the manufacturing volumes have come back up.
And the manufacturers are currently producing at a level that you know consistent with you know say solid market growth and.
You know given that we are starting from a shortage situation you might need to see a little bit higher than that to get back into balance quickly, but but we do see an opportunity for us to deploy a significant amount of capital in 2021, if market conditions remain strong and especially given our position with customers and the fact that I mentioned, a few times a lot of them do see us as their go to.
Supplier I get and we think if the market remains reasonably buoyant, we'll have a lot of opportunity to deploy.
Capital in 2021 and were starting with a running start you know given the orders that we placed already.
But do you also right on the capital management side, our leverage is about as low as it's ever been.
At a time when you know debt costs are also about as low as they are we're throwing off a lot of cash right now due to our profitability and we have a lot of confidence in our cash flow going forward and for all the reasons, we were talking about with our leased portfolio and I and all the containers put onto attractive longer term leases and so I can tell you we think a lot about.
You know what are the priorities for that capital.
And for the cash flow, we did increase the dividend, 10% this quarter to reflect the improvements in our profitability and the durability of those improvements.
You know, but when it comes to other things you might do there is there's a lot of options you know when we look at them all the time ranging from.
We've been buying back shares aggressively at various points over the last 18 months.
You know weve.
Remained a believer in acquisition opportunities for the right deal at the right price that's fair to our shareholders too.
And Ah you know there's lots of other things we could consider so so it's a it's a it's certainly a problem. We ponder you know what do we do with all this cash flow and all this balance sheet strength, but of course, that's a pretty good problem to have.
Yeah I appreciate that Brian that is certainly a high quality problem to have just one one follow up.
Realization rate obviously, it's it's you know really snow.
Really snap back here and great to see that it's already pushed up well over 97% is there.
Is there a natural ceiling feel it here I mean I understand that.
Got a 40 foot containers those are bad utilization rates running almost a 100% or so.
But the 24 containers had been a little bit softer is there is that therefore give you kind of a natural ceiling is this kind of as high as it it could go unless that market really.
Rebound as strongly as well or what what are some of the puts and takes we should consider that.
Yeah for sure there certainly is a natural ceiling and quite frankly, sometimes in past markets be pushed past. It you know I think one of the things. We always say is if we get our utilization to 99% I mean underpriced, our containers and so you know we don't like to try to achieve some kind of theoretical maximum of utilization because you know again.
We we did just means we'd given away equipment cheaper than we should have and then plus we also think our main value to customers is having standby capacity and so we worked pretty hard to try to make sure. We have some in addition, we've got a very diversified fleet of containers. We've got that's something like 60% of the revenue you know about.
Revenue and assets or maybe slightly more than 60% coming from dry containers. We also have a big position and reefers and then we have a number of ancillary product lines like tank containers, and and special containers and well all of our product lines are doing well, it's really the 40 foot hike, even 40, plus standard dry containers, where we're seeing the extreme.
Demand and then relative to suit available supply high end.
And so right now that portion of our fleet. You know is passed our ideal utilization in fact, you know that but it's close to full utilization that you can get and we actually wish we had more and you know could you take back containers and have them be available for other customers that need them and what.
And we'll just have to see what happens with the other parts of the portfolio, which would then determine where the overall utilization go.
Great and actually me sneak in one more here.
The.
Everything that they were kind of reading.
Reading and hearing from yourselves and others is that before to strengthen the 40 foot containers nikes and standard containers is.
Led by the strength of all of the consumers here that has continued to kind of spend throughout the pandemic I'm a lot of that's supported by the school and you know I guess monetary stimulus as well.
How impaired or do you think that the ongoing recovery here is tied to that strength of the consumer do you think that.
How do you think that you know potential another round of stimulus here in the U.S.
Could play out for for your business do you think it's kinda necessary to keep this recovery going or just kinda too hard to discern did the potential impact there just any commentary there would be a very helpful. Thank you yeah sure I'll try to give you my thoughts so you're right.
As he mentioned that the four that strong demand for the 40 foot and 40 foot high containers tend to be consumer oriented, especially in the U.S. in Europe and so the the trades that have really led the trade recovery. During 2020 are the main east West Trades Asia to the U.S., primarily in Asia, Europe and reflects the fact that consumers.
Started spending.
Much more rapidly and are there more aggressively than certainly I think most people anticipated as a lockdowns Easton and you know it's hard for US you know to really discern what's driving that behavior I wouldn't say, we've got better insight into that than than anyone else a interest in talking with our customers and and how you're thinking about what's going on.
I'd say a lot of our customers and us are pointing to perhaps changes in consumer behavior, where the ports.
The portion of peoples wallets out there, we're spending on travel and eating out and other types of experiences and services have the you know have gone way down because of cope with restrictions and fears or where that's been shifted to to buying things.
You certainly hear that.
And you see in the in the data on consumption that people are buying a lot of electronics. There is lot of home improvement work going on a you know goods for the households, and things like that and those things comes in containers, you know where of course, you know the hotel stays don't and I think that from what we hear is a lot of it you know I think of course anything that drives economic growth.
Tends to benefit our business because certainly global trade is highly correlated with economic growth you know now when this current cycle interestingly, if they're not running hand in hand that you know of course economic activity in most of the world is not yet back to where it was before the pandemic, where a trade volumes are well above.
So I don't really know I mean, it's it's I wouldn't say I'm more qualified than anyone else to judge how the how essential. This did this round of stimulus is to the 2021 level of.
Economic growth or consumption and in the west.
But again I think the thing I'd say is that the level of economic growth and trade growth will drive how much investments and how much growth we have opportunities to participate in next year, but in terms of the profitability and cash flow improvements of the business a lot of that's been locked in.
Okay, great. Thank you for that color Brian.
The next question comes from Larry Solow from CJS Securities. Please go ahead.
Great. Thanks, Good morning, guys and I, all I to pass on 'em, Congrats on not managing the business really well during the certainly the initial downturn it depends on.
I'm just I'm just trying to you know obviously it would be going forward 21, and beyond and trade growth is still a lot of uncertainties there and.
And I know you guys don't guide to 21, but I'm just trying to set some goalposts like you've got a two sort of $1.40 dollars 45 exiting this year yep.
I think you said 350 million of containers for delivery in the first two months of 21.
Let's just say you know even in a in a worst case scenario covert lingers, even when we come out of covered but so obviously some of this rebound in trade growth was was because of the big slow down in the first few months of the year. So lets say trade growth is or even contracts a little bit or even over the next couple of years is it fair to say <unk> <unk> <unk>.
You know you sort of set a floor that you know about a dollar whatever that may be you know plus or minus dollar 50, a quarter for the next you know.
Six eight quarters, you know even in a you know not a nuclear worst scenario, but a you know a negative or flat to down trade environment.
Yes. So you know not surprisingly, we don't want to get pinned down to a specific forecast for absolutely I mean from a high level yeah without specifically, let me give you know, we typically give sort of numerical guidance one quarter out what we did say in the press release and certainly tried to allude in our comments to is is that.
We have I'd say more confident than usual heading from this year into next year and that's despite the fact that they're probably less confidence unusual one just the macro picture because of the cobot, uncertainties and and stimulus uncertainties and all other kinds of things.
You know in terms of the trajectory of earnings do you believe we typically find is when the nice things about this business is when the market is strong and kind of the tide comes in you can do.
You can do a lot of things that that have long term benefits and most importantly, our taken all the containers that were sitting in depo and paying for it and we're paying for storage putting them on hire not just putting them in higher while the market is good but we're putting them onto a multi year long term leases in many cases lifecycle leases so that even if the times get worse in the tide.
Proceeds we kind of hang on.
Hosting the ground and hang onto that and that's not to say we can yes, if the market really weekends, we can hold our performance exactly flat. We you know I'd say, our profitability and utilization do move in the direction of market conditions and you know what it can move quite slowly and typically what you find is that as mark additions change.
Yeah, we started to drift upwards are down, but but again, it's it's a what do you have opportunities like we've had over the past couple of quarters. The changes you make are durable.
And the drift down would be slow and then usually in our business because the order cycle for containers is so short that negative period doesn't last that long outside of something really unusual.
And so all that being said you know we do look forward to 2021 and say again, it's not we can't predict exactly how its going to compare to the fourth quarter run rate, but we.
But we think it's going to be on the absolute level a high level of profitability in very attractive return on equity.
Right and then clearly you're prove your proven that it's you know multiple times, the downturns and specifically even in this pandemic downturn that.
You do how you felt relatively slow over the last you know from even before the Pennsylvania common trade volumes were good for the last couple of years, you guys kind of slowly came down on a like yourself to position itself for the long term.
Just as we look out even 22 23, usually got how Detroit and seeded this.
Go about other other more content.
Containers coming off lease as we look out over into not the next one year, but over the next two three years or.
Yeah. So we do have a charge still in the deck about it I'm sorry.
Yeah. So the you know the current expirations. If you when you look at the chart look like they're a little high but we've got a shaded part of the bar that shows I mentioned briefly that we've done a lot of deals that really severely limit how many containers can be returned even for expired leases and so you know they'd be even exposure unexpired leases right now is pretty small and it remains small for the next.
Few years, and I think we show to the percentage of our fleet that is that repricing risk in any given year and typically you face repricing risk for containers that are expiring off of lease before the end of their useful life, because you have to lease them again.
And it's up it's a pretty small portion of our of our fleet that it that said at risk for repricing in any of the years over the next over the next four or five years and then we also show how the the average rates on those leases that are expiring compare to the current market rate and you know lots of.
Not surprisingly the current market rate because it's high right now is above those expiration rate, but even I'd say it more kind of cycle average levels of lease rates, we don't face a tremendous level of repricing risk on these expirations again, they are relatively small compared to our fleet and lease rates on those expiring.
Containers are not extraordinarily high.
Got it great. Thanks, very much appreciate it.
Yeah. Thanks.
There are no more questions in the queue. This concludes our question and answer session I'd like to turn the conference back over to Brian Sondey for any closing remarks.
Thank you well first I would just like to thank all of our employees for really truly outstanding efforts. This year in this quarter in particular and then thank you to all of our shareholders for your ongoing support of train.
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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