Q4 2020 Triton International Ltd Earnings Call
Good morning.
Welcome to the price International limited fourth quarter 2020 earnings release Conference call.
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Please note today's event is being reported.
I would now like to turn the conference over to John Burns. Please go ahead Sir.
Thank you Rocco.
Good morning, and thank you for joining us on today's call.
We are here to discuss triton's fourth quarter and full year 2020 results, which were reported this morning.
Joining me on this morning's call from Triton is Brian <unk>, our CEO and John O'callaghan, our head of global marketing and operations.
Before I turn the call over to Brian I would like to note that our prepared remarks will follow along a presentation that can be found on the investors section of our website under investor presentations.
I'd like to direct you to slide two of that presentation and remind you that today's presentation includes forward looking statements that reflect triton's current view with respect to future events financial performance and industry conditions.
These forward looking statements are subject to various risks and uncertainties.
And that has provided additional information and its reports on file with the SEC concerning factors that could cause actual results to differ materially from those contained in this presentation and we encourage you to review these factors.
In addition, reconciliations of non-GAAP measures to the most directly comparable GAAP financial measures are included in our earnings release and the presentation.
With these formalities out of the way and now I'll turn the call over to Brian.
Thanks, John and welcome to Triton International's fourth quarter, 2000, and 'twenty earnings conference call on.
Start with slide three of our presentation.
Triton's outstanding results and the fourth quarter of 2020 provided a fantastic finish to a remarkable year.
And the fourth quarter, we generated a dollar and 70 of adjusted net income per share and increase of almost 50% from the third quarter.
And we achieved an annualized return on equity of 22, 9%.
For the full year of 2000, and 'twenty, we generated adjusted EPS of $4 61.
And achieved an adjusted return on equity and 15, 9%.
We did not anticipate having the opportunity to achieve this level of performance when the pandemic initially took hold.
It's a core spin and tragic and difficult time.
But the changes in consumer spending patterns caused by the pandemic have led to a surge and trade and very strong demand for containers.
We are pleased to have the opportunity to work closely with our customers to keep global supply chain is functioning.
And we're very proud of the way Triton Triton team has executed seamlessly through all the challenges and disruptions created by the pandemic.
And 2020 try and demonstrated the resilience of our business and our discipline and agility with capital management.
Our financial performance held up very well and the first half of the year, while trade volumes were hit hard by the initial Covid lockdowns.
And we focused our investments on share repurchases during this time.
We then achieved exceptional operational and financial performance and the second half of the year as trade volume surged.
We drove record levels of containers on hire boosting our utilization, it's almost 99% by the end of the year.
We also quickly pivoted, our investment focus to aggressive fleet growth.
We accepted and $550 million of containers in the fourth quarter.
And we are on pace for a record level of fleet investment and 2021.
Market conditions remained very strong and we are carrying significant momentum.
Trade volumes remain well above pre pandemic levels and the supply of containers is tight.
Our utilization is close to the maximum level and.
And we have almost 600000 teu of new containers book for pickup and 2021.
We expect our adjusted EPS will hold steady or increase slightly in the first quarter from the record level achieved in the fourth quarter of 2020 and.
And we expect our profitability will remain at a high level throughout 2021.
We expect the business and financial benefits from the current strong market will be durable.
We've placed large numbers of containers on to well priced long duration leases.
We have expanded our leasing margins with attractive financing activity.
And we have further secured our position as the go to supplier and our industry.
I'll now hand, the call over to John O'callaghan Global head of marketing and operations.
Thank you Bryan turning to slide four and the current market overview.
Trade volumes have remained exceptionally strong and continues to be boosted by consumers shifting from services to goods.
And lines continue to face a shortage and I am.
Ship capacity to meet this demand and they relied heavily on the lease companies for their containers.
The availability of containers remains limited debt.
And container inventory has been completely absorbed driving utilization to record levels.
In addition, new production and inventory remains low despite manufacturers', increasing production, leading to a jump and container prices as well as market lease rates.
Finally, net secured sizable bookings servicing those shipping on requirements due to our extensive supply capability.
We have booked over $1 3 million Teu since July 2020, capturing and access it's 35% on the lease market share.
In addition to securing a sizable share the average duration of new production business is that over 10 years with an expected lifetime on Roe.
And the upper teens and a launch percentage of use depot containers have been locked into lifecycle leases.
The pace and magnitude of the volume required to meet demand has also increased sales amount to record levels and used container disposal prices continue to strengthen and their alimta containers and available for sale.
Slide five illustrates the strength and trade driven by the shift in consumer spending from San Francisco goods.
And also that cargo volumes have continued to remain above pre pandemic levels since July 2020.
The bottom left chart gives us some indication that there may be room for this to run.
Inventories are still below where they were pre pandemic levels and the ratios and the true sales.
It is evident the goods and not piling up on the shelves, but continue to find a way to consumers.
Those goods continue drive as quickly as they come in you can see the strong growth levels on the chart on the right.
And the market contracted hard and the first half and 2020, and then recovered very quickly and was back to normal levels by July pushing into very strong levels of growth and the second half of 2020.
We think this will at least pushed from the second quarter of 2021.
And each year from a customer that the numbers are strong and trade volumes are currently constrained a container on vessel capacity rather than demand.
All of this trade and addition to creating demand for containers and continued to create a range and logistical challenges from our customers.
With a decrease and turn times and boosting demand for containers.
Slide six shows Triton's key operating metrics reflect the strong market and pushing up even further than we predicted.
This can clearly be seen in the top left chart with utilization and near maximum levels.
We have booked $1 3 million Teu since July and little more than half picked up in 2020, including almost all of our available used containers and.
And we have 600000 teu of new containers to be picked up and the first half of 2021.
Over 75 per cent of triton's used containers and have gone into lifecycle and basis leased.
And these sorts of used containers and not slowing as we bump up against full utilization and the last step of units go on lease.
The bottom chart demonstrates the significant bookings of new and used dry containers over the last seven months.
On the bottom right chart looking at the extreme like bar under watch current we only have limited dry definitely units remaining uncommitted.
Hello, and left is a chart showing new leasing transactions by quarter.
The bubbles represent the significant amount of new production.
And so on these over the last seven months.
These leases have an average duration of 10 years. The chart also illustrates the increase and market lease rates as container prices jumped to meet demand.
Slide seven explains the container supply remains very tight despite the fact sheet production ramping up.
The chart on the right shows factory production by quarter from the beginning of 2019.
It's worth observing two things.
Leasing is making up the vast majority of consciousness and for a period of 12 months production was below replacement.
In addition shipping on container fleets contracted as customers took action to tighten costs through 2019, and look to gain efficiencies to offset revenue pressure.
This helps explain and part what has contributed to the shortfall.
As production has ramped up its many lease companies buying and its trade and such customers and dependent on leasing companies to add containers to debt fleet quickly and efficiently.
Second quarter is likely to be even higher on the lines of continuing to rely on leasing companies for that supply.
You can see that the factories have really boosted production response to higher demand and last six months and are projected to do the same for the remainder of the first half of 2021.
Despite this high level of production you can see low levels of debt available factory inventory on the bottom left shops.
These are orders by shipping lines and leasing companies combined what's sitting on the ground is very small roughly representing two to three weeks and production supply one day.
Slide eight helps illustrate why and vessel space and container shortages are driving freight rates and container prices to record levels.
Yeah.
Trade volumes have been restrained by the lack of container vessels and lack of container on vessel capacity pushing on freight rates and container prices.
You can see and the off the right chart, new container prices are and the range of $3500 the highest I can remember.
Bottom right chart illustrates that the sale of used containers and increased steadily throughout the quarter.
And the shortage of available sales containers net two week on week price increases as inventory was depleted.
The chart on the left.
Illustrates the transpacific and east west spot freight rates relative to bunker costs and this also puffy encapsulates, where we are at this point and time will contain a shortages as well as the lack of ship capacity pushing container prices and rates to unprecedented levels.
I'll now hand, you over to John Burns our CFO.
Thank you John.
Turning to page nine.
On this page we have presented our consolidated financial results.
Adjusted net income from the fourth quarter was $114 $7 million or $1 70 per share.
And increase of nearly 50% from the third quarter.
And we finished the full year of 2020 with adjusted net income of $319 $9 million or $4 61 per share.
These exceptional results represent a return on equity of 22, 9% for the fourth quarter and 15, 9% for the full year.
Turning to page 10.
Our results on the fourth quarter reflect the benefits of the surge and container demand during the second half of the year, which generated strong leasing demand and exceptional disposal gains.
Lower fleet growth was limited for the full year when the lease demand jumped in the second half of the year, we pivoted and aggressively ramped up our capex.
<unk> almost $550 million of containers and the fourth quarter.
Average utilization increased 2% and the fourth quarter to average 98, 1%.
And the year and utilization was 98, 9%.
The increase in utilization drove down direct operating and expenses by $11 $2 million from the third quarter.
Largely due to lower container storage and repair expenses.
And the pain and the container shortage and high new container prices drove a sharp increase and container disposal prices.
Resulting in $25 $4 million and gains on sale and trading margins and <unk>.
Jumping nearly $11 million over the third quarter.
We had not anticipated this rapid increase and disposal prices and related jump and disposal gains.
And 2020, our shipping line customers manage the rapid swings and trade volumes caused by the pandemic.
And by managing vessel supply better than they have and prior periods.
And the supply discipline led to strong profitability for the year and May indicate long term financial stability for them and a reduction and our overall credit risk.
We repurchased one 4 million shares about our outstanding shares during the fourth quarter, reducing our average diluted share count by one five per cent from the third quarter.
And for all of 2000, and 'twenty, we repurchased five 1 million shares at an average price of $30.85.
Reducing our average outstanding shares by seven 2% compared to the prior year.
Yeah.
Turning to page 11.
On this page, we highlight our strong balance sheet significant liquidity and a well structured debt profile.
Our key leverage metric is net debt as a percentage of revenue earning assets.
This metric was 69% at year end.
Well below our historical levels.
In addition to our low leverage we have significant liquidity as shown on the table on the top right.
We also continue to maintain a simple capital structure, which you can see on the bottom left.
Made up of common equity.
Small slice of fixed rate perpetual preferred shares and the balance and senior secured debt.
The current cost of our debt is competitive with an average effective interest rate and the fourth quarter of three 4%.
And we issued $500 million of ABS notes in January this year and a yield of roughly one 7%.
On the bottom right graph, we show that we have no significant maturity cliffs and our debt portfolio.
Enabling us to meet our obligations from a cash flow, which is shown by the blue line.
Without the need for refinancing for several years.
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.
And you can see the strength of our current cash flows and the annualized fourth quarter. Thank you.
The graph on the bottom left shows how our stable cash flows together with the short order cycle for containers and enables us to maintain our leverage and a steady range over the long term.
As John noted, we continued to invest aggressively and new containers.
With $1 $7 billion of containers already order delivery through June.
This volume alone would lead to over 10% asset growth.
And with our strong current cash flows we can support significant further investment and growth this year without a meaningful change and our leverage.
And 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, while paying a substantial dividend.
I'll now return you to Brian for some additional comments.
Thanks, John.
Slide 13 shows our Triton has consistently created value for shareholders by nimbly shifting our strategic and capital allocation focus.
Over the last five years, we've experienced a wide range of market conditions.
And it's been successful throughout this time and.
Weighted value for our shareholders and a variety of ways.
And 2016 trade volumes and container demand were impacted by a global industrial recession.
We executed well on this challenging environment, but our main strategic focus with structuring and closing the Triton and Tal merger.
This merger generated substantial cost savings and created the clear scale cost and capability leader in this industry.
Our shareholders continue to benefit from this merger through our steady outperformance.
Global trade and container demand rebounded strongly in 2017, and 2018, and we shifted our focus to fleet growth.
We estimate we won roughly 40% of new leasing transactions over this time and.
To our fleet over 20% across these two years.
Trade growth was weak in 2019 due to the global trade disputes and trade volumes are down sharply and the first part of 2020 due to the initial COVID-19 lockdowns.
We dialed back on capital spending over this time, but aggressively repurchase shares at attractive levels.
With the recent surge and container demand, we have now shifted our focus back to aggressive fleet growth.
And we are on pace for a record year of container investment.
It's also important to note that he paid over $10 per share and dividends. During this time and would you start leverage.
Yeah.
And I'll finish the presentation on slide 14.
2020 was a remarkable year for Triton.
We performed well from the challenging first half of the year.
And created meaningful value for shareholders through share repurchases.
We drove our operating and financial performance to record levels and the second half as we experienced a surge and container demand and we quickly pivoted our investment focus to growth.
We provided large critically needed container solutions for our customers and.
And once again demonstrated the business and financial advantages of our market leadership and disciplined capital allocation.
We expect the benefit to the current strong market will be durable.
We have locked away large numbers of containers on long duration high value leases.
We've expanded our leasing margins with attractive financing activity.
And we are further secured our position as the go to supplier and our industry.
Triton and starting 2021 with significant operating and financial momentum.
Market conditions remain very strong.
Our critical operating metrics are at high levels, and we have already secured a substantial volume of attractive new container lease transactions.
We expect our adjusted EPS and the first quarter of hold fairly steady or increase slightly from the record level, we achieved and the fourth quarter of 2020.
And we expect our profitability will remain strong throughout the year.
I'll now open up the call for any questions.
Thank you as a reminder, ladies and gentlemen to ask a question. Please press Star then one.
And has already been addressed and like to remove yourself from queue. Please press Star then two.
Today's first question comes from kind of Hudson and are where bank of America, and so I'm not.
Hey, great good morning.
So Brian just a phenomenal results and congrats on that on a great year and shifting to the growth, but let me just ask you. This I don't know if this is for you or John but it looked like lease rates were a little bit soft and the fourth quarter and the annual lease yields declined it looked like sequentially is that because youre shifting on the longer term lease rates and order.
To lock in longer terms or maybe you can just talk about the environment and and.
And it sounds like your outlook remains even more robust going into 'twenty, one and talk about that a bit.
No that's interesting Ken and this is something we actually didn't see that in the fourth quarter and my guess is and it's a calculation and I'll I'll take a look at is perhaps the container acceptances that we made were back ended in the quarter or something so that the the average containers and our fleet or certainly the average number on higher you know where we're less than maybe it looked like if we just take day, maybe the day quarter.
And number.
But as John O'callahan noted in his and his discussion and market lease rates are up significantly and you know.
On one of the interesting things to note about the bubble chart that we show there and as you can see that the the lease deals that were doing are you know what.
Well above where they had been in the previous strong cycle on 2017, and 18, but actually the average duration of leases is probably four or five years longer and twitches. So those are the apples to apples rates are even higher relative to the prior period. So so I'll get off to sort of look at the mathematical Cork that may be giving that and that impression, but but generally speaking.
Lease rates are very strong.
Okay, and and how do you I mean, you've been very good and understanding the cycles and figuring out when and when to buy and and so I wonder if taken from that a bit I mean, just given how tight it is now but John also mentioned.
And the shift that you've seen and the shift of goods from services. So it is just so good right now and Youre getting these phenomenal 10 year leases, which is which is great to lock in long term, how do you understand to not overbuy into AR and upswing Perry or.
How do you see this cycle lasting longer.
Sure. So as you point out it's it's a it's certainly it's a strong and somewhat unexpected on.
Unexpectedly strong time, right now and driven by.
Things like that and I, just kind of fundamental changes in consumer behavior, and I think because of the pandemic and and and I think now that's also compounded by some logistical challenges are created for the shipping lines as they try to get containers offloaded from their vessels and and you know moved inland.
Just due to the same challenges you know just the the volume of goods, but also I think lower work forces on the terminals and and in trucking because of the pandemic.
We're constantly talking with our customers to get their assessment on how long market conditions are likely to remain very strong and.
And what we're being told right now is that.
The market right now has really been limited more by capacity and then demand and and so that creates some loans from its own natural momentum is as containers that are loads that cant be moved now will actually move later on.
We're hearing from our customers that they expect conditions to remain strong into the second quarter.
I think beyond that it's not that they expect conditions to necessarily weekend. It's just it gets less predictable and I think because this is unusual.
Things that are driving demand and so it's a little bit even more difficult to anticipate how it changes.
No actually I think you know the as we get through the second quarter into the third quarter that typically is the peak season for shipping.
And where goods that are going to make it onto the shelves and in Europe and the U S for Christmas have to start moving and so.
And so you don't get our view generally is that the market feels pretty good for 2021.
I think you know as you know we try to be very careful and managing our inventory of new containers are that one of the benefits of this business is that your order containers typically with only a few months of lead time and that's.
Lengthened a little bit this year because of the strength of demand and so we purchased containers through June.
But but that said the amount of on committed containers that we have a very small portion of our overall spend so far this year so and.
So it certainly is not without risk we do have containers that we purchased at high values that are waiting to go on and on.
And at least the customers, that's that's why customers use us and.
But that said, it's a very small portion of our container fleet anytime.
Not locked away either on lease or waiting to be picked up on elyse.
So just a quick follow up on that just so I understand it.
Do you see a shift of.
Adding more contract business to your pre buying of containers or is that just a feature of the market Youll still book to take that risk of ordering and containers going forward.
Yeah, So I'd say on our basic business model has not changed that we buy containers from the factories and and have them ready for customers to commit to them. So we're always taking some level of inventory risk I think what's changed really just at the pace of activity you know that.
The shipping lines are scrambling to to grow the size of their container fleets, because they're being limited on volte on volume right now because of a lack of equipment.
And we've been scrambling to place orders and and yes and to some extent, it's been a race between our ability to order and our demand from our customers.
But but again the basic business model of us buying equipment to have ready availability for customers Hasnt changed.
Great Alright, John John and thank you very much for the time thoughts Okay cool. Thank you Ken.
And our next question comes from Michael Brown, and I couldn't be there'll be a please go ahead.
Hey, good morning, guys.
Good morning, Brian and I wanted to start with.
Maybe the cadence of how these containers will will come on and how we should think about the lease from revenue growth from here. It's just went on to modeling this out the last two quarters or think of.
And of Mis.
Mis modeled win win that and with the new bookings start to kind of hit their full revenue ramp and so you obviously had a very active fourth quarter.
And it sounds like some of that came in towards the end of the quarter based on your comment that you just made.
But you clearly have a lot coming on and the first half year, but John I was hoping you could just give a little more color about debt 600000 containers windows and put a car or kind of expect it to start to ramp up as we think about first quarter second quarter and and beyond.
Sure and so maybe I'll just provide a little perspective from maybe 2020 and then we can talk about 2021. So again, we'll take a look at the <unk>.
The timing of containers coming in and then just sort of perhaps quirk of the modeling and it looks like rates went down.
But I think if you just dial back to when we really started seeing the strength and the market. It was in July.
And then we started ordering containers, probably and Ernest you know and in August and just given the timeline for container production and we probably started getting deliveries.
You know and and and high volume is probably not much until October September October. So on and then monthly deliveries were growing month on month, and so you know I think that that's probably the issue that's leading to the modeling issue and fee in Q4.
And I'd say you sense, you know probably January of 2021 on the <unk>.
Factories are producing at a at a high level of of monthly production and we probably expect a steadier you know delivery a can of containers and and you know on higher growth.
You know throughout 2021.
Probably it's still going to grow probably second quarter relative to first quarter.
But it will be a lot less a lot less ramped and because the factories already.
Are you, saying on high volume for the beginning of this year.
Okay, and that's helpful and.
And then just.
And in the prepared remarks, and you talked on.
A little bit about how the shipping lines continue to really rely on the on the on the leasing companies here.
And which is obviously great to hear it but just curious if you could.
That dynamic and and what what causes them to use you guys more versus looking to to deploy and kind of their own capex I know that they've got it kind of a number of.
[noise] love and that they have to toggle between and their own businesses, but I would just love to get some additional comments about that.
Sure. So I think basically it's just the same reasons that they've used leasing companies and the past and a sense of that.
Leasing is an efficient way to add equipment to their fleets at say relative to purchasing containers are they get much greater flexibility on how many containers to take and and.
And where to take them from this number of locations in China, where containers are produced that container size types is more flexible and when.
On your lease and then just to pick up timing.
We maintain this ready inventory and so we're just cuts the the time between knowing and need to container to the to the time you can actually get it rather than play placing your own orders.
And all of those things allow the shipping lines to operate fewer containers and their fleet and and generally speaking and that's why they use leasing and now also something we've talked about on our Investor day is the extra cost of leasing relative to buying and container I think has come come way down.
And that we finance our containers very efficiently.
We use a higher percentage of debt to finance, our containers and the shipping lines do just due to the greater stability of our business model.
And and just the the greater scale that we operate certainly compared to our history, you know theres not a very high charge that gets put on top of the container for our operations because we operate such a large fleet.
So overall I think it's just the shipping lines have.
And most of them kind of cross that bridge that you know using leasing to add equipment is a it's just a sensible way to manage their container operations.
At this time right now and it is interesting and shipping lines are doing very well financially starting in the second half of this year and expecting to have and a really phenomenal I think first and second quarters and because of the very high freight rates, but they continue to rely on leasing and and and again I think it just mainly reflects the fact that you know that adding that they're using leasing as a pretty sense.
As a way for them to add equipment.
Okay. Okay, great. So it's not really many major change and the reason.
And recent months here.
Let me let me just sneak in maybe one more here.
So as I think through think through your business, you're at maximum utilization rates, you're and you're.
Seeing expecting on a record level of investment you are seeing a pace that points towards that level at least.
Leverage is at a.
Historically low levels.
But production is still somewhat constrained here so it seems like its some.
It sounds like you'd probably want to be in and even even more if possible.
So against that backdrop, how are you feeling about like consolidation here do you still see that as a potential.
Potential opportunity.
Or is that is your mindset kind of shifted at all here. Thanks.
So I think we're still believers and consolidation.
And I think we've talked many times about all the benefits, we see ourselves getting from the talent Triton merger that we.
And we're able to put together and in terms of cost savings capability advantages supply you know advantages to our customers, having a bigger fleet to draw from and simpler to work with one customer so.
So I think generally speaking in terms of the strategy, we still see that consolidations being interesting for us and and very much remain interested and and looking for opportunities and I think just as as you know that really just depends on what opportunities become available and and how they stack up financially do we think it's a you know like a.
A good investment for our shareholders and so.
From a strategy of consolidation and yes, we very much are interested in and it just it comes down to the the practical details.
And what opportunities present themselves.
Okay, great. Thank you Brian.
And our next question today comes from Larry Solow with CJS Securities. Please go ahead.
Great. Thanks, Good morning, guys.
Congratulations as well and that's very good year and and.
Exceptional quarter, just a couple of follow ups just.
Just on the just from a high level.
Sequentially and I know you guys don't give guidance beyond the quarter on but just.
In terms of just looking at it from a high level on the on the revenue side. So.
And it seems like your operating lease revenue I guess, we should assume should bump up.
Like you mentioned 600000 new to us.
Coming on online in 'twenty and 'twenty, one I would assume that would bump up and then maybe there's a little bit of.
And I did a little bit of a drop on sales of of used containers and I know you mentioned.
I got to imagine the supply that will be dwindling right on your what's the.
And your hands, so short and you had a little bit of a pop the last couple of quarters, I think $8 million, plus and and 10 million plus this quarter.
So is that a good way to kind of view those two line items.
Yeah for sure so you're right, there's going to be a lot of revenue strength coming from multi investments that we made and easiest way to think about it and I think John Burns mentioned it in his prepared remarks.
The $1 7 billion that we've committed to be produced for us through June 30th.
And alone would lead to about 10%.
Asset growth for the year on them.
And that you know, it's all else equal that's pretty close to you know private once we get that $1 seven.
Billy and delivered 10% revenue growth something like that again, all else equal you know and if nothing else and the business changes in terms of utilization or are other things.
And I think certainly and the short term debt.
Challenge will be likely to replicate that day the gains on disposal prices and as John O'callaghan showed on his charts are exceptional.
Exceptionally strong right now because there's a lot of value to have the container.
And there's not many around and.
And that that pushed our gains up to very high levels and the fourth quarter and I think there'll be very high again and the first quarter.
But at some point yeah, it's yeah, the inventory is getting quite small and and customers.
Typically the inventory gets replenished it as customers drop older containers and just given the shortage of equipment, we're getting very few containers dropped off lease.
I guess, that's a high class problem, I guess and the overall Grand scheme of things, but.
Absolutely.
Yeah, and then on the on the expense side and.
In terms of direct expenses, obviously sequentially they came down pretty nicely.
There's still about 6% of revenue as we go forward and I think if we look back historically on historical peaks on utilization was running really hot I think it was even closer to 4%.
Is there room for this to drop.
As we go out over time on.
On a percentage basis, what you'll see and the first quarter is that you know the fourth quarter utilization was up about two points during the quarter.
And so say on average was one one point less than where it finished and yes, the easiest way to forecast direct operating expenses as to its kind of an inverse of utilization.
And so there should be some further benefit as we do think that utilization will remain you know virtual virtually near peak and 99% range throughout the first quarter.
After that it really just depends what happens with utilization.
Right. Okay, and then you know obviously, you're spending a lot more you're investing so I suppose and and you did announce a new $500 million UBS notes I know a few weeks ago.
I'm not sure I think a part of that maybe was funded from existing debt, but I suppose interest expense should start to creep up the yellow card.
Go up a little bit.
As we look out at low Larry John here, and I would say our average effective rate will stay and probably in the similar range or notched down a little bit yeah. As you know, we did the $500 million and avs net.
At one 7% and we do have about $1 6 billion of institutional notes and a private placements that slowly wind down about $300 million per year. So as we refinance those loans are at about four and a half.
Four 6% so as we refinance those at lower rates will get a little bit of benefit from that right and so we expect that I think a little further improvement and the average effective rate offset I think as you're pointing out by increase in debt associated and the all the containers that were buying.
Got it okay, great. Thanks, I appreciate it.
And our next question today comes from Dan Day, with B Riley Securities.
Yeah morning, guys and thanks for taking my questions and congrats on a really really great quarter and it's great to see yeah. Most of my questions have been asked but I'll I'll get a couple more and.
Just on the the gain on sale and leasing equipment here. It was really strong and fourth quarter, obviously, you talked about it.
Just.
As part of that due to like for example increased demand for static storage like the Amazons of the World book and to take delivery of these.
These containers for storage is that kind of a factor here and how strong the day mandates for used containers.
So we definitely are hearing from customers that you know cargo shippers are holding on to containers longer and.
Seen some interest and and people like Amazon and the world to start.
And you're owning some of their own containers to it because they get charged by the shipping lines and they hold on to containers longer and they're supposed to but but frankly I think the main thing that's driving containers is the fact that the the shipping lines you know our customers are having a hard time getting them. So that some cargo movers are actually buying containers.
And then using those containers they purchased to move cargo and are free.
And that somehow it's a net lower price.
And so we're seeing the strongest prices and strongest demands and Asia.
We think again and it can and containers are primarily being used.
As a way around the container shortage.
And net $25 million and a quarter between the gain on sale and trading margin do you think that's the kind of sustainable number going forward at least kind of through first quarter, and then kind of tapering off after that.
And we don't like to give too much guidance below or just maybe above EPS, but you know right now it's a little difficult to predict you know we're seeing prices continue to I think you know John and Callahan and called it increase week by week a.
Which is the case and and on the other hand, we're seeing very few containers coming back and and so you know.
And there's just not much inventory to sell from but so overall I'd say, we expect the gain to be at a high level of suddenly very high relative to how many containers for selling them, but it's not it's not so easy to predict you know just how the you know the debt decreasing volume because of low inventory how that how that works against the rising price.
And just how long this extreme shortage situation lasts but but overall expect to be selling for good gains for and for some time here.
Yeah.
Awesome. Thank you and then just a last one on obviously the focus here probably through the first half of the year, it's gonna be on Capex.
But you know once the containers on place and once that sort of Capex and then start to come down as far as returning capital to shareholders can you just may.
Maybe refresh us on how you're thinking of between buybacks and dividends and how much you have left on the repurchase authorization and sort of what you look forward to its about two.
Yeah sure you know actually we tried to make the point and the presentation that we.
We're nimble and and tried to be fairly thoughtful on how we allocate our cash flow and you know and one of the good things of course of having you know performance like we're having is that we generate lots of cash and and so we can actually do quite a few things with cash flow right now John John Burns mentioned that you know we've already you know and get invested for 10% growth and you know through June 30th.
And but of course the year doesn't end in June 13th and we could actually continue to invest at a high level before we're going to move our leverage upward so.
If we wanted to we could do other things as well as buying.
Buying containers at a pretty aggressive pace right now.
But I think you know in terms of what else, we might consider share repurchases and obviously, we look at that regularly we've been active buyers a number of.
Years here and and you know.
And we'll continue to look at that relative to the attractiveness of other uses of our capital including further growth.
M&A or portfolio on opportunities.
Increased dividends et cetera.
And we spend a lot of time on at the senior management team and with our board and again, we just.
And we've got lots of cash to use and we'll try to make and make sure. We continue to make good decisions about where to put it.
Awesome I appreciate it thanks again for taking my questions and I'll turn it over.
And ladies and gentlemen. This concludes the question and answer session I'd like to turn the call back over to the management team for any final remarks.
Well just like to thank everyone again for your interest and attention for Triton and we look forward to talking to you soon and thank you very much.
And thank you Sir This concludes today's conference call and thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
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