Q3 2021 Triton International Ltd Earnings Call
Good day and welcome to the Triton International Limited third quarter 2021 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero. After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then.
One on a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to John Burns Chief Financial Officer. Please go ahead.
Thank you Matt.
Good morning, and thank you for joining us on today's call. We are here to discuss triton's third quarter 2021 results, which were reported this morning.
Joining me on this morning's call from Triton is Brian Sunday, 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 with the presentation that can be found in the investors section of our website.
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 industry conditions.
These forward looking statements are subject to various risks and uncertainties.
<unk> provided additional information in 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 on our earnings release and the presentation.
These formalities out of the way I'll now turn the call over to Brian.
Thanks, John and welcome to Triton International's third quarter 2021 earnings Conference call.
I'll start with slide three of our presentation.
Triton achieved outstanding results in the third quarter of 2021.
We generated $2 43.
Adjusted net income per share.
An increase of 14% from the second quarter.
And we achieved an annualized return on equity almost 30%.
Our outstanding results in the third quarter were driven by strong growth in our recurring leasing revenues.
The significant reduction in our average effective interest rate due to our refinancing activity.
We expect our adjusted earnings per share in the fourth quarter will increase slightly from our outstanding performance in the third quarter.
Our excellent results are being supported by very favorable market conditions.
Strong trade volumes and ongoing logistical disruptions continue to drive exceptional container demand.
And this exceptional demand is driving very high prices for new and used containers and exceptionally high container utilization and leasing rates.
Triton's locked in durable enhancements to our business.
We have purchased over $3 $4 billion of containers for delivery in 2021.
Which will lead to nearly 30% asset growth this year.
These containers have been placed on long duration high Roe leases.
And will underpin our profitability and cash flow for many years to come.
Our strong deal share. This year also further secures our position as the go to supplier in the industry.
And further extends our scale and unit cost advantages.
We have completed our transition toward unsecured investment grade financing.
And we have meaningfully reduced our average effective interest rate with aggressive refinancing.
We are also seeing a financial transformation of our customer base.
As the shipping lines used their extraordinary profitability this year to de lever.
Overall, our expected long term financial performance has shifted meaningfully upwards.
We continue to use our strong cash flow to drive shareholder value in a number of different ways.
We have used most of our cash flow this year to fund massive value added investment in our container fleet.
Now the container deliveries are pushed past the traditional peak season.
We have shifted some of our cash flow to share repurchases.
We also announced an increase in our quarterly dividend to <unk> 65 per share.
And we have done all of this massive fleet investment renewed share repurchases and an increased dividend, while keeping our leverage comfortably in our historical range.
I will now hand, the call over to John O'callaghan, our global head of marketing and operations.
Thank you Brian.
Turning to page four.
Page four illustrates that goods consumption and logistical bottlenecks driving strong container demand.
The two charts on the left clearly explain my container demand is exceptionally strong.
It's driven by consumption remaining very high in the U S and as imports continued to search to meet that demand as clothing, a snag into supply chain further impacting the restocking of inventories.
The charts on the right are the cause and effect.
As global trade volumes remain strong there's still multiple bottlenecks are not being sold through our system.
As you can see in the bottom right chart shows a historically high number of container vessels waiting off the U S west coast to discharge their cargos.
There are not enough available ships container is trucks and chassis to meet demand.
Combined with insufficient labor in the yards.
Terminal and rail networks, they remain congested and.
Logistical challenges continue.
The disruptions are not currently improving and can be seen worldwide.
Especially the U S East and West Coast, the main Chinese ports as well as northern Europe.
Page five.
Page five illustrates the freight rates on new and used container prices have continued to rise through the quarter driven by strong demand for vessel space and containers.
Chart on the left illustrates the transpacific and east west spot freight rates relative to bunker costs.
Great.
Jordan early high reflected in the continued strong demand for cargo and.
And the logistical bottlenecks keeping capacity shortage.
You can see in the upper right chart that new container prices have remained in the $3800 range.
The bottom right chart illustrates the sell price of used containers continue to rise throughout the third quarter due to the continued surge in demand for cargo use and a shortage of available.
So katanga.
Page six.
Page six is that older container production is high.
Our fleet remains tight.
The chart on the left shows annual production broken out in percentages between leasing companies and shipping lines.
We've shown that offline that we expect a substantial amount of new production still be built over the remainder of 2021.
This would represent container fleet growth of 10% or more.
This is hard and trade growth a container production was not much above the estimated replacement range in 2008, 2019 and 2020.
Illustrated by the great band.
Also explains why the market experienced significant container shortages last year.
As you can see by the percentages and the Orange box at the bottom of the chart leasing chose being very high since the fed started at over 70% in 2020.
Approximately two third so far in 2021.
But we expect this to be more balanced in the fourth quarter.
On the right you can see new production inventory.
Despite the factories producing containers in greater quantities.
Inventories of new containers remain relatively low.
There's limited definitely stock on the ground and although we're seeing a slight increase in new production stock post Golden week.
The suggesting that this will continue to be absorbed at a good clip.
Turning to page seven.
Page seven shows Triton's key operating metrics reflect the strong market.
This can clearly be seen on the top left chart utilization at near maximum levels.
On the upper right shots, you can see the third quarter pickups remained very high as customers continue to absorb equipment through the peak season.
We had very low drop offs with these almost immediately going out on lease are sold with a high gain on sale.
The bottom chart demonstrates the significant bookings of new and used truck containers over the last 12 months.
Hello that bubble charts reports when we contract the deal.
You can see off peak season lease contracting levels were down in the third quarter as most of the containers ordered in the third quarter.
Livery after the peak season.
We have accepted them placed on order $1 2 million Teu of new production containers, so far in 2021.
Over 80% of these had been delivered in the first three quarters and we expect most of the remainder to be picked up through the fourth quarter.
The leases negotiated have had an average duration of 13 years.
The bubbles also illustrates the increase in market lease rates as <unk>.
The prices have jumped to meet demand.
The size of these investments in 2021 are even more impressive on a dollar value basis.
We placed three $4 billion of orders for containers in 2021.
On the bottom right chart looking to the extreme right bar under what's kind of the depth of inventory. This is all being leased out.
So the 75% that would pick up since June 2020, I've gone into lifecycle pieces.
And the average <unk> rate has increased.
Page eight helps illustrate what we've achieved.
We put on new containers very long duration leases and we are focused on placing our used container on lifecycle leases.
Just had a significant impact on our average lease durations.
These durations have gone from 40 months five years ago to 60 months today.
If you include a typical amount of time it takes customers from tank containers, we probably have on average 17 months of locked in on high time.
We're looking forward to continuing to build and longer term benefits across the fleet portfolio.
I'll now hand, you over to John Burns our CFO.
Thank you John.
On page nine we have presented our consolidated financial results.
Adjusted net income for the third quarter was $163 $8 million or $2 43 per share.
An increase of 13, 6% from the second quarter and over 100% from the prior year's third quarter.
These exceptional results represent an annualized return on equity of 29, 4%.
In the third quarter, we incurred $42 $7 million in debt termination expense largely made up of a make whole premium associated with the prepayment of institutional notes.
Due to the non operational nature of this charge.
We have excluded it in arriving at adjusted net income.
We expect to recapture the vast majority of this payment through lower interest expense over the next several years.
Turning to page 10.
Our results in the third quarter reflect the benefits of the significant investment in new containers, we have made to support our customers.
They have responded to the jump in trade volumes.
In the third quarter, we benefited from a significant delivery and on higher of new containers, along with a full quarter's revenue from the prior years prior.
Prior quarters high volume of new container on hydro.
This drove an eight 2% sequential increase in leasing revenue.
On a nine 2% increase in average revenue earning assets.
Revenue growth was less than asset growth.
Largely due to the growth in finance lease portion of our fleet and.
And the way finance lease revenue is recognized.
Year to date, we have invested $3 4 billion in new containers and $2 7 billion has been delivered and placed on hire by the end of the third quarter.
Average utilization increased two tenths of a percent from the second quarter averaged 99, 6% and remains at that level today.
This near maximum level of utilization drove down direct operating expenses by $800000 from the second quarter and over $20 million from the prior year.
Largely due to the very low container storage and repair expenses.
The prepayment of our institutional notes in June and August.
Gather with the issuance of bonds at much lower rate levels.
Enabled us to reduce our effective interest rate.
For the third quarter to 277%, representing a 43 basis point drop from the second quarter and over 100 basis points from the third quarter of last year.
Our combined trading in disposal gains remain exceptionally strong at $34 $8 million for the third quarter.
So down $7 3 million from the second quarter.
Due to limited off hire and disposal volumes.
Turning to page 11.
This page highlights our strong and stable cash flows which drive long term value.
Yeah.
The graph on the top left shows our cash flows before capital spending.
And you can see how this year was exceptional operating performance together with the $3 4 billion in new container investment.
Generate a step function change in cash flows.
And we are leveraging the current market conditions to generate long duration lease contracts.
It will lock in this higher level of long term performance and cash flows.
The graph on the bottom left shows our strong and resilient cash flows together with the short order cycle for containers enables us to maintain our leverage in a steady range over the long term.
Our leverage has increased back into the normal range over the last two quarters.
Reflecting our aggressive investment in new containers, partially offset by our recent preferred share issuance.
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 our business, while paying a substantial dividend.
Turning to page 12.
Earlier this month, we completed the previously discussed strategic transition of our debt capital structure to primarily unsecured debt.
Fitch upgraded Triton to a triple b minus and along with S&P, who already upgraded to investment grade.
Affirmed the existing investment grade rating on the $2 $3 billion of recently issued bonds on an unsecured basis after giving effect to the following collateral provisions of those notes.
At the same time, we amended our existing bank revolving facility and.
And a term loan facility from secured to unsecured.
Together these events and transactions result in Triton to becoming a fully investment grade company.
We believe this debt structure will provide us multiple benefits and extend our already substantial competitive advantages.
I'll now return you to Brian for some additional comments.
Thank you John.
Slide 13 focuses a little more on how our strong cash flow gives us numerous levers to drive shareholder value.
As we've mentioned our primary focus this year has been making aggressive investments in our container fleet.
The massive container needs of our customers.
We expect to increase our assets nearly 30% this year and we've built a higher long lasting foundation for our profitability due to the 13 year average duration and the high expected irr's for the leases covering these containers.
We have slowed our container purchases over the last quarter as delivery times pushed past the traditional peak season.
We are continuing to conclude leasing transactions.
We primarily utilized ever be large orders, we placed earlier, our third quarter deliveries.
Our shelf uncommitted new containers is now on the low end of our recent range, giving us an opportunity to assess where container prices will go post peak season.
To the extent that our investment level normalizes, we will generate significant excess equity cash flow.
We have already used some of this excess cash flow to restart share repurchases.
And we repurchased 600000 shares in September and October.
We believe investing in our shares is a compelling value for us.
And share repurchases are also highly accretive to EPS.
Very low p/e ratio.
We increased our share authorization back the $200 million to give us sufficient flexibility to repurchase shares. When this is our focus.
We also raised our dividend nearly 15% this quarter to 65 per share.
This increase follows a nearly 10% increase made last October.
Despite these successive increases our dividend payout ratio remains conservative.
Affecting the substantial improvement in our profitability.
The higher dividend also reflects our confidence that our increased profitability will be durable.
Slide 14 put some numbers behind our cash flow analysis.
The top grouping up numbers illustrates how we think about our free cash flow using annualized third quarter financial information.
In the third quarter, we generated over one 5 billion of annualized cash flow before capital spending.
We estimate that we need to spend between 825 $850 million on new containers, each year as replacement capital spending.
This leaves about $700 million of annualized steady state cash flow before a regular dividend.
And roughly $525 million of annual equity cash flow after the dividend.
The next set of numbers illustrate a few things we can do with this $525 million of cash flow.
Do we have left after the replacement capital spending and our dividend.
All while maintaining constant leverage ratio.
It would be focused on capital investment, we can self fund the equity needed for nearly 20% asset growth.
Alternatively, if we focused on share repurchases with the repurchase almost 15% of our shares at the recent trading range.
If we wanted to instead focus on dividends, we could pay almost another $8 per share on top of our regular dividend.
Bringing the total annual dividend to over $10 per share.
We have typically pursued a mix of these options.
Yeah.
I'll finish the presentation with slide 15.
Triton achieved record performance again in the third quarter of 2021.
We generated $2 43.
Adjusted earnings per share.
And if he has an annualized return on equity of 29, 4%.
Triton has used the strong current market conditions to make durable enhancements to our business.
Our large block of 2020, when containers are locked into long duration leases with high returns.
Our high share of new leasing transactions as reinforcing our scale advantages and further securing our position as the go to supplier in the industry.
We have extended our lease durations and increase the portion of our containers on lifecycle leases.
And we have locked in lower long term interest rates and a higher leasing margin.
Our transition to unsecured investment grade financing and aggressive debt refinancings.
We are using multiple levers to drive shareholder value, including aggressive fleet growth share repurchases and an increased dividend.
And we expect our financial performance will remain strong.
We expect our fourth quarter adjusted net income will increase slightly.
From our record results in the third quarter.
We expect our cash flow and profitability will remain elevated into the longer term.
And we expect our net book value per share will increase rapidly.
Due to a high return on equity.
That's the end of my prepared remarks, but before we transition to questions and answers I would like to mention that trading will hold an investor day on November 17.
At the Investor Day, we will focus more on why we think <unk> represents a compelling value.
And we will provide a deeper dive into current market dynamics, our performance and the value. We've created this year with our massive investment.
I will now open up the call for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time to your question. That's been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question will come from Larry Solow with CJS Securities. Please go ahead.
Great. Good morning, guys and thanks for taking the questions and congratulations on a really impressive quarter and the outlook.
Just first question maybe on the just on the towards.
Towards the earnings power of near term.
It sounds like you're going to do your guidance is around the $2 50 number for the quarter in Q4, and I know, maybe it's a dangerous exercise, but if we sort of annualize that number.
I know youre, not giving guidance for next year, but it does seem like you are pretty locked in for the next few quarters and I think one concern we get from some of our clients and investors.
Some of these benefits are short term and there'll be sort of like an earnings cliff at some point.
If I sort of just your comments and see what the exploration schedule looks like over the next couple of years.
What would prevent you from doing even close to this sort of earnings number even through 2023.
Even if you don't place any more containers and there isn't there's a minimal amount coming off higher the next couple of years. So.
What would be the the danger of saying that you're kind of seem like $10 earnings power for the next couple of years.
Fairly locked in borrowing from.
Nuclear war type scenario, no negative scenario, but yeah.
Yeah no. Thanks for the question I think as you probably know we typically don't give specific guidance beyond the next quarter.
And so again our guidance from Q3 to Q4 was that we expect our earnings to be up slightly from the already very strong level in the third quarter.
We've made a number of comments that this quarter and before that we do feel that we are building a new higher level of profitability given the improvements that we've made in our business, including adding a lot of containers on very long duration high ROE IRR releases, we've done a lot of great work with our existing containers liking those away.
On long duration leases and then we've done a lot with our financing margin.
Sure.
Interest rate and leasing margin with all the refinancing activity that we've done and so we do feel very well protected.
Into the next couple of years and feel that we are at a new.
Higher level of earnings than we were in the past and that also the the likely spread of what we might achieve in the future between say negative cases and positive cases.
Spread has come down just because so many of our containers are locked away.
For a long time as we've shown in our slide so so basically the premise that we do expect earnings to remain strong.
For a while now.
We don't like to give any specific guidance on just what that means in terms of a specific number.
But again, we do think we are in very good shape to have strong financial performance for years to come here.
Right and it does sound like maybe a subtle shift and maybe you just sort of taking a pause.
To see what happens.
We get past the major buying season seasonal strength, but.
It sounds like maybe a little bit of a ship less buying in the near term.
Maybe only minimal buying over the next few quarters in more of a shift towards share repurchases that you did in 18 and 19 is that.
Fair assessment or are you sort of just keeping all options open at this point.
Yeah, no I wouldn't want to roll forward too many quarters I think the main thing we'd say is the market remains very strong.
<unk> trade volumes still elevated there is still a tremendous amount of consumer demand in the U S and other places too.
I saw a huge amount of operational disruption again in the U S. But also in many other places in the world that you know.
That are slowing container turn times and sort of absorbing excess container of extra container capacity.
And so we wouldn't say that we expect you know necessarily expect capital spending to be lower or demand to be less as we head into next year I think.
One thing we would just say is that it's just I think that's a timing issue.
There as we're ordering containers really starting in July and continuing through now.
The container delivery dates are what we call the post peak season.
October November December January.
We're typically.
Our shipping line customers take some time to digest the containers that they've added in the seasonal cargos go down and so I think I would describe it more we've just taken an opportunity to you.
Use the cadence that we've been wondering for very high prices and supply those to the leases that we're doing.
And it gives us an opportunity to see what happens with container prices what happens with demand.
As we go through the post peak period, and then into next year.
But I think it's really an open question I think we feel that the odds are it's going to be another.
Very good year for.
For the leasing business next year in.
The other question that I don't know that will hit the same investment levels that we did this year, which would free up cash flow for other things, but but again the great thing for US is we don't have to.
Make long term bets on where we think the market's going you know container delivery timings typically its a couple of months and so we can just wait and see what happens.
To the extent that we see very compelling investment opportunities like we did this year it at high volumes won't do that because.
Because I sense that we don't have as Stephanie and Capex requirements, we will ship the cash flow to other things, which certainly could include share repurchases and already have.
As we utilize some of our excess cash flow during this period, while we're waiting and seeing what's happening to container prices and leased them out.
Okay. Great. Just last question if I may just your thoughts sort of longer term on that.
Dynamic between leasing versus <unk>.
Purchase containers, but by shipping lines.
We all know what's what are the advantages of leasing.
Clearly, it's a <unk>.
More flexible business model.
You feel like you know what.
All of that has happened over the last few years.
Maybe it's not 75% of containers or 65% even that.
Our lease on a go forward basis, but it seems like that pushed through the 50% and above but maybe you get a more sustainable benefit from more leasing revenue more leased containers versus purchase as you look out with next few years is that.
A fair comment.
Yeah. So certainly the shift in share of how containers are coming into the business from what had been maybe 10 years ago. Now majority purchased really over the whole last 10 years majority of at least has been a good thing for the leasing business. You know it gives us all opportunities to grow our fleet faster than global trade without needing to take.
Market share and that's one reason why we've been able to grow our fleet I think it's eight or 9% or maybe now putting this year, probably close to 10% a year over the last 10 years and it's also something we've seen over the last two years. During this search time that you know the new the share of new containers coming in I think as we showed on one of our slides was we.
Estimate over 70% of the new containers coming in released in 2020.
And something in the low 60 percents had been leased so far in 2021.
I think the one caveat to that that that John Kelly had mentioned is just our customers are making a tremendous amount of profitability. This year and many are actually building cash on the balance sheets because they are there.
They are so profitable and they just have a limited number of liabilities that are pre payable and.
And so we suspect that that may cause some customers to increase their purchasing of containers.
But we don't think it's going to be dramatic and I think most of our customers have reached a conclusion that leasing is just a good way to add containers through their fleet that.
It's actually fairly cost efficient, especially given the efficiency of our capital structure.
As well as there's a lot of flexibility benefits picking up containers, when and where you want them over five times the size type that they need at that moment.
So again, we do think this kind of a secular shift towards leasing will continue.
But again in the very near term, it's possible, we may see a little bit of increased buying because of the excess cash for our customers.
Fair enough that makes sense I appreciate it defaults Nicole thank you.
Yeah no. Thank you.
Our next question will come from Michael Brown with K B W. Please go ahead.
Great Hey, good morning, guys.
Those are going to.
I was hoping to just put a finer point on the fourth quarter guidance, where.
We expect adjusted EPS to rise quarter over quarter.
Which as you know.
Not all that surprising to hear but but great to see that still playing out here.
What does that contemplate for leasing revenue growth you've talked about the fact that the margin can continue to expand as.
Containers that were picked up in the third quarter, you get that kind of a full quarter benefit.
But you did see.
Revenues grew 8% sequentially in the third quarter. So is it a way to kind of say you know the fourth quarter will be a similar type of growth is that kind of right way to think about it or is it possible to come in actually a little bit better than that.
And because we typically don't like to give guidance on sub components of the of our income statement.
I don't know Im giving guidance at the bottom line adjusted net income per share.
But I think the other dynamics that we expect to happen or that we think our leasing revenue and our leasing margin will.
To grow from the third to the fourth quarter.
On the revenue side, that's driven by <unk>.
Continued pickups for the leases that we've done and we will probably continue to do some leasing even though as opposed to peak season.
And also just I think you referenced a second ago just by the fact that we had a very large number of containers picked up in the third quarter that had a kind of a partial quarter's worth of revenue because of the timing of the pickup that we'll get a full quarters worth of revenue in the fourth quarter.
And then the second driver expanding our leasing margin is just lower average effective interest rate.
Our story, where we paid off some more expensive financing during the third quarter and had a partial period benefit of that and.
And we expect now a whole period benefit of lower lower average effective interest rate in the fourth quarter.
And so.
Losing margin up nicely from Q3 to Q4, we.
We do suspect that'll be offset some by lower disposal gains and I think as we've shown in our charge. The prices are still very high and we don't expect.
To be really constrained by by price, but we just have very very few containers left to sell.
And we've been squeezing very attractive gains out of limited inventories.
But as the inventory continues to just get tighter and tighter.
Does become hard to maintain gains a claim level that we've seen.
And so again, that's the basic dynamic, but we do think the the revenue growth and the margin growth will offset the <unk>.
You know for a lack of inventory and a decrease in sale, but the other good thing for that for US is not only do we think the OS.
Ball profitability is going to increase slightly it's also an improvement in mix that would be.
Benefits, we get from the growing revenue and the lower interest expense now those things are durable last for a lot of years, where the gains obviously are more transactional and so again, we're looking at we think a very strong fourth quarter of increased profitability as well as an improved mix.
Okay, great. Thanks for all that additional color yeah. So.
So I think one of the dynamic shifts that I've been talking about this with investors is just that that change from the.
A lot of investment Capex coming coming down from the peak levels and then as your cash flows have continued to grow there'll be a shift to capital return and we saw that playing out with a dividend increase this quarter and then a.
You know I'm kind of getting back in the market for share buybacks.
As you are.
Move into 2022.
How do we think about how that continues to play out you talked about little bit about how we know right now and as we're coming off the peak season that theres a little bit of.
Uncertainty about doing.
Doing all that Capex at this at this moment and that certainly makes sense, but.
You move into 2022 do you still expect to.
C revenue, earning asset growth and how could that compare to historical historical periods and then.
You have the authorization for 200 million out there what is kind of a cadence that we could expect for something like that so I look at slide 14, where you show your cash flow after replacement Capex and regular dividend that shows that you could have you could take out 14% of shares here.
And maintain your current leverage so I'm just trying to get a sense of how to think about your authorization relative to.
So what you're showing there on that slide.
Yeah sure. So I mean first of all maybe just a technical point on our authorization and we typically just think of the authorization. There is almost like an administrative thing where we want to make sure that we have enough room to buy back shares when we see shares investment is the best way for us to deploy our excess capital. So when we increase the share authorization of 200 million that doesn't say that.
That's the minimum we're going to spend or the maximum we're going to spend it's just something that we maintain let's say a reasonable amount of room that we can then utilize them over the next couple of quarters.
Just given the trading volume, it's probably hard to utilize more than that over a couple of quarters.
But again, we just go back to our board if we if we use a portion of it and we are quite supportive of buying back stock when it makes sense.
And we would just re up it again, so so I wouldn't put too much emphasis on that 200 million.
Other than to say, yes, we've been buying shares until we needed to create some more some more room to do more.
In terms of where we go in 2022 I think the main thing is we think we'll wait and see that.
The good thing about container investments is there is a very short lead time and it gives us the opportunity to see what actually happens in the market without needing to try to predict what happens too much. We always mentioned the excuse me, we always maintain a shelf of equipment that allows us to supply customers what they need over the next few months.
And if they take it when we buy more and you don't have.
2021, we had just an amazing array of attractive investments that we were buying containers working aggressively we were doing deals. We've mentioned a few times with we estimate equity IRR is in the upper teens in some cases lower twenties, given inventory profits we were making.
And despite the fact that we also felt our shares we're a compelling investment.
Just you know the attractiveness of the Capex.
Really as well as what it's doing for our franchise at securing our position in the industry both in terms of scale.
Well as a sort of relationship with customers, but that was the best use.
So as we get into 2022, well just you know as we always do the same if.
If we have significant and substantial equity excuse me.
Once in our container fleet will look to do them, but we will compare that against the.
The value, we think we can create by buying our own shares.
I think as you mentioned in your note and we mentioned in our talk the shares trade for a very low multiple of our earnings.
And so because of that and because of our confidence in the durability of our earnings we see the shares is a compelling value too.
So again I don't want to predict necessarily how will exactly what will happen in the market or exactly how we'll do that tradeoff of attractive.
Asset growth relative to attractive share repurchases, but.
But again as I've mentioned, a few times the cash flow gives us a lot of optionality.
The senior management team spent a lot of its time and focus on making sure that we put our cash flow to its best use as you know.
We definitely will be focused on that next year or two but again, you know that the market backdrop.
We think it's actually a pretty attractive and we slowed a little bit as we've mentioned our purchases because they had a lot of orders for delivery during the peak season that we placed earlier.
And price is very high and it's interesting to see what's going to happen with that during this post post peak season.
But again I wouldn't suggest at all or is that sort of a kind of conservative about next year.
Pulling back, it's really just kind of waiting and seeing.
Thanks, Brent I was that was great a great great color. There. So maybe just one more if I could I could sneak it in your ROE. It's consistently risen this year right. It was 25% in the first quarter or 26, 6% last quarter, a top 29% this quarter.
All of those on an annualized basis.
With the gain on sale piece that that could be somewhat episodic, but I think it's fair to assume volumes will rise and you know maybe the gain per container comes down, but probably will still be pretty healthy here for a while.
I guess, what I'm trying to get out is what is the right baseline expectation for triton's row now I mean, you've you've put on it I think it was something like 40% of the portfolio in this post Covid period, correct me, if I'm wrong on that but structurally your ROE just seems like it's well above where were you guys.
We're targeting in the past, which I want to say something closer to like a 20%.
So I don't know if that's an investor day kind of kind of topic, but I'd love to get a little bit of color on that.
Yeah, Let me give some color on out but I'm glad you mentioned at our Investor Day will hopefully gives them some interesting details and color on all of these things.
To be honest, we can talk about kind of time frame.
But I think as we talked earlier, we expect our profitability to remain higher than its normal range for a long time.
Coming from the fact that we have put a lot of containers on very high on our leases.
In fact with locked in those leases for very long durations and also we do expect a favorable market backdrop to continue just given the strong consumption the high trade volumes the ongoing operational disruption. So so all of those things come together and we say, yes, we do think ROE and profitability.
It should be higher than our typical range.
You know for the foreseeable future here.
Great. Thanks, and looking forward to hearing more next month.
Yes, Thanks, Michael.
Again, if you have a question. Please press Star then one our next question will come from Liam Burke with B Riley. Please go ahead. Thank.
Thank you good morning, Brian Good morning, John.
Good morning.
Brian Port congestion has played a role.
In the business and it's worked in your favor how do you see for this foreseeable future, it's going to be a reality of the shipping industry, but how do you see port congestion affecting your business long term or how do you do you see it changing or any kind of changes.
Congestion eases.
Yeah. So we are watching it closely but we don't see it directly but we're kind of watching a lot of the same data I think those are public transportation industry watching plus we're talking with our customers every day that are living with it.
I'd say, our take is from listening to our customers is that we don't expect any any rapid improvement in port congestion and it's not really just a porch. It's got a ports are congested there's not enough truck drivers, there's not enough labor in the warehouses to turn the containers and then on stockpile.
And it's not just in the U S either it's in northern Europe and the UK.
Port issues in China.
And so really the whole global.
Container.
Flow has been disrupted by the surge in cargo demand coupled with.
A variety of challenges that have been pandemic induced them.
We don't think that's gone unwind quickly.
That says when it goes I've said when it does start to unwind it will be a source of extra container capacity, so would almost be like a little bit of extra production.
As containers are freed from being bottleneck and then start to flow more rapidly around and so it's just something that we keep our eye on when we when we placed orders for containers.
Very good news for us.
Is that as we ramped up capacity to supply in this time, where containers or are getting stuck and add extra capacity, we're putting those containers and in fact all of our containers on very long duration leases. So it's not as if.
Containers are freed up from.
From these bottlenecks they can't all come rushing back to us and our customers have taken them on very long duration leases.
So.
My sense is for us the more likely impact will be you might have.
Growth in the container fleet until therefore investment opportunities for us.
<unk> off by a point or two.
These bottlenecks start to ease.
But again, we think it's something that plays out over a long period of time.
And as well as we've mentioned a few times, we don't have to make very long that wanted to buy containers.
Maintain a shop of equipment as we lease it out we had more.
And to some extent allows us just to kind of feel our way there.
As.
These bottlenecks start to ease, but again, we think this is.
No not in immediate situation, that's much could it be down the road.
Great and you are the market leader you have some clear barriers to entry here, but as the market has continued to unfold coming your way have you seen any change in the competitive environment.
No not really and it's a business of specialists.
There is one.
One thing I would say those are that's table stakes are very high to getting involved.
You have to have an infrastructure that covers the globe.
<unk> for marketing.
And so it's not like a financial players can come and go from container leasing you know once you have to make significant investment to be and then.
Then you are in and so we typically we haven't seen for example, new entry.
Because the market is so strong you know.
One thing that we do see and it's a dynamic that typically plays to our favor.
The market is very strong and customers are desperate for equipment that is.
When they really want to work with <unk>, because we are the market leader.
Also maintained by far the largest shelf available equipment.
And they also know that we have the deepest pool of operating resources and are willing to spend extra to make sure we deliver.
And so we see that when the market is really strong like it's been our deal share goes up and we estimate there are deal share is probably over 40%.
<unk>.
The other market first I really took off last year as compared to our overall leasing fleet share of say a little under 30%. So.
The great thing about that is when the market is very strong is also when the rates are strong and returns and so we get a disproportionate share of the good business out there.
We do see sometimes that after maybe the market cools a little bit in our customer or excuse me. Our competitors then start to maybe try to come in a bit more aggressively our customers feel they have more options if things aren't quite a touch of Boyle.
To work with customers or excuse me to work with leasing companies aren't maybe as capable as we are.
But in general we haven't seen anything really unusual and sit still.
The business is still served by the leasing companies that have sort of that after a long time.
Great. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Brian Sunday, Chief Executive Officer for any closing remarks.
Yes. Thank you very much for just like to thank everyone for your ongoing interest and support of Triton International.
I look forward to hoping to speak with all of you at our Investor day.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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