Q1 2022 Triton International Ltd Earnings Call
Good morning, and welcome to the Triton International Limited first quarter 2022 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then.
One of your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference with the John Burns CFO . Please go ahead.
Thank you.
Good morning, and thank you for joining us on today's call.
We are here to discuss triton's first quarter 2022 results, which were reported this morning.
Joining me on this morning's call from Triton is Brian Sunday, our CEO and John will Callahan, our head of global marketing and operations.
Before I turn the call over to Brian I'd like to note that our prepared remarks will follow along a presentation that can be found in the industrial 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 Triton has 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 in our earnings release and in the presentation.
With these formalities out of the way I'll now turn the call over to Brian .
Thanks, John and welcome to Triton International's first quarter 2022 earnings conference call.
I'll start with slide three of our presentation.
Triton achieved another quarter of record performance in the first quarter of 2022.
We generated $2.76 of adjusted net income per share an increase of three 4% from the fourth quarter and an increase of 45% from the first quarter of last year.
And we achieved an annualized return on equity of over 30%.
Triton's carrying significant operational and financial strength into 2022.
We have added over $4 billion of containers over the last two years.
And place these containers onto high margin long duration leases.
We've extended lease durations across our fleet and.
And increased the share of our dry containers and lifecycle leases to almost 60%.
And we have achieved meaningful interest expense savings through aggressive refinancing activity.
And locked in these savings by focusing on fixed rate long duration debt.
Market conditions remain constructive.
Good consumption remains high and.
And our customers continue to face extensive extensive operational disruptions that are slowing container turn times.
Container prices and market leasing rates are down from last year's peak, but remain historically high.
Our customers have been more cautious about growing their container fleets. So far this year after aggressively expanding last year.
But dropbox remain low and a number of customers have been active leasing for spot requirements and again at lease rates that remain historically high.
We continue to use our strong cash flow to drive shareholder value.
We have repurchased three 3 million shares or about 5% of our total since we shifted focus from aggressive fleet investment does share repurchases last fall.
We are increasing our repurchase authorization back to $200 million.
And we announced a quarterly dividend of 65 per share.
We have made durable enhancements to our business that we believe have locked in a higher level of performance.
We expect our adjusted net income per share will decrease slightly from the first to the second quarter as disposal prices and gains moderate.
But we also expect a profitability and return on equity to remain very high.
Throughout 2022 and into the longer term.
I will now hand, the call over to John O'callaghan, our global head of marketing and operations.
Yeah.
Thank you Bryan turning to page four.
Page four illustrates the goods consumption and logistical bottlenecks continue to dry container demand.
The two charts on the left illustrate the consumption remains elevated in the U S.
The ratio of retail inventories relative to sale remain at low level.
The talks and the right shut it solid growth trade growth is forecast at $3 2022, which combined with logistical issues will continue to absorb capacity.
Is it shipping lines continue to struggle with dysfunctions those disruptions have been exacerbated by what has been happening in the major port areas in China.
There is potential for further disruption on the west coast as congestion Ping Pong, this back and forth between Asia and the U S.
We are hearing from our customers that these bottlenecks would absorb a lot of capacity for some time and in an unpredictable way.
Page five.
Page five illustrates that freight rates and new and used container prices are down from the peaks of 2021.
We'll remain historically high.
The chart on the left illustrates the transpacific and east west spot freight rates relative to bunker costs.
Freight rates ultra maintenance targeting high due to the continued demand for cargo.
All the logistical bottlenecks continue to absorb existing available capacity.
You can see in the upper right.
Prices have come down and are slightly below $3000.
In part due to the high volume produced through 2020, one easing some of the shortage.
The bottom right chart illustrates that the sale price of used containers has come down some in the first quarter, but all sorts of names historically high.
Page six.
Page six shows the high container production in 'twenty, 'twenty, one and should ease container shortages overall availability remains tight.
The chart on the left shows container production and although there's been a reasonable about the building in the first quarter. It is well below last year's pace.
While we do not believe the shipping lines few containers a strategic investment.
They have placed a larger percentage of what building we have seen in the first quarter of 2022.
Chart on the right just container factory inventory and depth of stocks.
While we have seen the amount of data available container factory inventory increase.
As a percentage of the global fleet, it's actually lower than normal at one 5%.
The bottom right.
Our next to no definitely units available.
Yeah.
Turning to page seven.
Page seven shows Triton's key operating metrics remain very strong.
On the upper right sure you can see the first quarter pickups are down from last year, while still not positive as we came through the traditional slow season.
Drop off at these very low which is keeping utilization at maximum levels.
Even though utilization is coming off a little bit it's still exceptionally high and we remain well protected by lifestyle can be says our long term portfolio.
Illustrated in the bottom right chart.
Hello, and that bubble chart shows the pace of activity as customers have slowed or absorption of containers.
She was the seasonally slow period.
Customers remain cautious about additional container capacity after adding a lot last year.
But they also see a market like trade volumes are still strong.
We're still dealing with significant disruption due to continued logistical bottlenecks, so not dropping off any containers either okay.
Wait and see how the market develops.
We're still seeing a strong backdrop for us with high container prices multiple demand drivers for containers very.
Very limited drop off volumes and we have at the same time locked in most of our equipment.
I'll now hand, you over to John Burns our CFO .
Thank you John .
On page eight we have presented our consolidated financial results.
Adjusted net income for the first quarter was $179 $6 million or $2.76 per share.
An increase of three 4% from the fourth quarter.
And nearly 45% from the prior year's first quarter.
These exceptional results representing an annualized return on equity of over 30%.
On page nine I'll discuss the drivers of our strong profitability.
Our strong first quarter performance reflects the enhancements we've made to our business over the last two years.
Our first quarter revenue was flat from the fourth quarter. Despite two less revenue days as we had a full quarter's benefit from the high volume of new containers on hired in the fourth quarter.
And utilization remained at maximum levels.
Revenue in the first quarter was up 20% over last year's first quarter.
Revenue growth was less than asset growth largely due to the growth and the finance lease portion of our fleet and the way finance lease revenue is recognized.
We expect our utilization revenue and fleet size to remain at very high levels in the second quarter.
We expect the first half fleet investment to be roughly at replacement levels.
And therefore, our revenue earning assets.
Steady.
Average utilization will likely moderate slightly in the second quarter.
And we expect revenue to be up slightly due to one more billing day.
Interest expense decreased slightly in the first quarter.
<unk> increased slightly in the first quarter, reflecting a full quarter increase in our average debt balance.
Due to the funding of the asset growth in the fourth quarter.
Our effective interest rate held steady at two 5%.
In line with the fourth quarter.
But down 80 basis points from the first quarter of last year.
Reflecting the benefits of our active refinancing activity over the last two years.
With over 87% of our debt portfolio being fixed rate debt or swap to fixed.
The weighted average duration of over five years.
The recent increase in interest rates will have a limited impact on our overall effective interest rate going forward.
We continued to generate exceptional levels of trading and disposal gains.
Totaling $33 $1 million for the first quarter.
Down only slightly from the fourth quarter.
We expect these gains to remain high in the second quarter.
We expect them to continue to trend lower as disposal prices decrease.
Since the end of the peak season last year, we have shifted our strong cash flows from aggressive container investment toward toward active share repurchases.
Over that period, we have repurchased three 3 million shares.
Including one 7 million shares repurchased so far this year.
Yeah.
And in support of the share repurchase activity, we have once again increased our share repurchase authorization.
Back up to $200 million.
Page 10 highlights the exceptional growth in our leasing margin and the profitability generated last year and in the first quarter of this year.
And that these high level of earnings are durable.
On the left we show how we have leveraged the strong market conditions to rapidly expand our leasing margin.
On the right we show why this high level of performance is durable.
The top right graph shows the increase in the average remaining lease duration for containers on long term and finance leases.
As you can see that the remaining lease duration increased over 60 months on a CPU basis.
And when we calculate this on a net book value basis, capturing the high cost and high revenue of containers purchased last year.
The remaining lease duration jumped to 79 months.
And if we include the typical time it takes a customer to return or build down containers once the lease expires.
Roughly a year to both figures.
In addition to the long duration of our lease portfolio.
The portion of the portfolio made up by these long term leases has climbed to 88%.
From 82, 5% at the end of 2020.
On the bottom right.
We show that we fund this long term lease portfolio.
With long duration fixed rate or hedged to fixed rate debt at very attractive interest rate levels. As a result of our refinancing activities over the last two years.
Yeah.
We expect this combination of attractive long term lease and debt portfolios will lock in a high level of leasing margins for years to come.
I'll now return you to Brian for some additional comments.
Thanks, John .
Slide 11 summarizes the way, we think about our equity cash flow and illustrates how this cash flow gives us a variety of powerful levers to drive shareholder value.
The top grouping of numbers summarizes the cash flow power of our business.
We are currently generating over $1 $6 billion of cash flow before capital spending on an annualized basis.
And remember the duration of these cash flows are substantial due to the strength of our long term lease portfolio.
We need to allocate a little more than half of this cash flow for replacement capital spending.
In order to maintain our fleet size as containers age out of service.
This leaves us with around $715 million of steady state cash flow.
We currently pay a quarterly dividend of 65 per share.
Which represents about $170 million in annual dividends.
As a result, we have about $545 million of steady state cash flow after our substantial regular dividend.
The next set of numbers illustrate a few things that we can do with this $545 million.
If we focused on capital investment, we could self fund the equity needed for nearly 20% asset growth.
While keeping our leverage ratio constant.
Alternatively, if we focused on share repurchases, we could repurchase about 14% of our shares at the current trading range.
If we wanted to instead to focus on dividends, we could pay almost $8 50 per share on top of our regular dividend.
Bringing the total annual dividend to over $11 per share.
We've typically pursued a mix of these options.
Slide 12 looks at how Triton has created long term value for shareholders.
We've talked a lot recently, but our trading that's achieved exceptional performance over the last two years.
But triton strong performance stretches back a long time.
Trading is the cost and capability leader in an attractive defendable market niche.
And we have a long history of delivering solid growth.
Strong profitability and above market investment returns.
The chart on the upper left looks at the long term growth of our container fleet.
Over the last 17 years, we have grown our fleet, 8% per year on a CPU basis.
And 10% per year on the basis of net book value.
The chart on the upper right looks at our long term cash flow before capital spending.
You can see how our cash flow has increased as we have grown our fleet.
You can also see the stability of our cash flow we.
We generated strong cash flow even in very challenging years like 2009 global financial crisis.
2015, 16, industrial and commodities recession.
The chart on the lower left shows how we've used our strong cash flow to both reinvest in our business and regularly return cash to shareholders.
An investor in <unk> 2005, I P O.
Just a business with an adjusted net book value of around $12 per share.
That investor today would have a business with adjusted net book value of $44 per share and they would have pocketed $30 per share in dividends along the way.
And as you can see in the lower right. The same investor would've earned an annualized return on investment of almost 14% per year <unk>.
Significantly outperforming the S&P 500.
I'll finish the presentation with slide 13.
Trading is off to a strong start in 2022, and we have high expectations for our business.
We achieved another record quarter of profitability in the first quarter.
We have made durable enhancements to our business and are carrying significant operational and financial strength.
Market conditions remain constructive.
We expect our profitability and we're trying to equity to remain strong.
Throughout 2022 and into the longer term.
And our strong cash flow gives us powerful levers to drive shareholder value.
Across a wide range of market environments.
We will now open up the call for questions.
Yeah.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys 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 Michael Brown with <unk> you May now go ahead.
Great. Thank you operator.
Good morning, everyone.
Morning, Michael.
Yeah.
So.
Brian and John I appreciate the comments on the on the bottlenecks and the challenges of the current operating environment.
On the shutdown situation in China.
Are your expectations or what are you hearing from customers in terms of when this could ease and then given the uniqueness of the situations. Once those shutdowns are are done how could trade play out from there well there how how old the catch up.
In terms of our goods produced in and play out from here well, how how will it normalize based on what your expectations are today.
Yeah. So I think the first thing I'd say is it's just a very uncertain situation that of course, there's a lot of things that are just unknowable you know about how the COVID-19 pandemic is going to progress and how that's going to impact are you know certainly China right now and everywhere else.
I'd just say the main thing we hear from customers is that the bottlenecks that we're really plaguing the shipping industry and I think the economy for.
Most of 2021 are still there and it's not just the ports in China or previously the ports on the West coast. It's a whole layer of factors you know going from port productivity to trucking capacity to warehousing efficiency and now of course, the shutdowns of some of the biggest ports in the world.
Typically what we see when we see disruption is that the same amount of goods want to flow and so when you see temporary disruptions that means the peak periods when things are flowing well or higher.
And that also tends to mean that shipping lines need more containers in their fleet relative to their cargo that theyre moving.
And that's what we're seeing and have seen for the last.
In 18 months or seller.
And again I don't think anyone really right now is brave enough to forecast just how it plays out but certainly it has been and continues to be a big impact on the business.
Okay, Yeah, that's certainly fair.
And then just wanted to ask about the secondary market.
And the gain on sale trends that you that you mentioned here so.
You talked about the fact that the gains are expected to tick down in the second quarter at least as of what you know currently is this.
Just a reflection of the limited containers that you have available for sale or is this I'm also an element of the gain on sale per container coming down more and more from here just trying to parse through what whats kind of built into that expectation and then if you.
You know I understand it's a there's a lot of uncertainty here, but if you think about the coming quarters.
Trajectory from here for the rest of the year is.
Is it is it possible that.
As if turn and start to come in at the volume that you're able to sell could rise and that you could actually experience a bit of growth in that line again I know, it's maybe a little further out in the year, but just curious how you think about that.
As we progress through the year.
Yeah sure. So you know we've been saying now for probably three or four quarters.
Gain on sale in disposal prices have to come down and.
Really the main driver behind those comments, it's just that they're so extraordinarily high.
We have some charts in the presentation that they look at you know used 20 foot and 40 foot I keep container prices over time and you can see that they reached really unprecedented levels in 2021, driven by the high cost of new containers and just the overall shortage of containers.
Choked off containers to the leasing and steel markets.
And so what we're seeing we are seeing price starting to come down just because like we've seen many other.
Freight rates and new container prices hit peak levels in 2021 and start to come off as the market.
Just can't stay at that level forever.
And so it's just it is a little hard to say, what's the pace of the container prices coming down.
We've seen some of it already we expect to see that happen more but but that said, we expect prices to remain very high and you're right as volume increases that we start to see more off hires some of which is pressuring price that also does lead to higher volumes in our volumes right now our storage very low.
And so we don't we're not trying to give the impression that we're gonna toggled very quickly back to where it sale gains had been in 2019 for example, but we do think that we'll continue to see some decrease in sale prices. Following the decreases we've seen in new building prices and following just the.
Kind of the easing of the extreme container shortage that we saw in 2021, even though container still remain pretty tight.
Okay.
Great and Brian I, just could sneak in one more here on on valuation I was just taking a look at your historical p/e multiple and just going back to <unk> to 'twenty 'twenty for example.
Your P at that time was closer to the mid Sevens.
Yeah, It looks like seven point for which I would argue is still probably a pretty low valuation multiple for your business and then.
Since then the consensus estimates for 2022.
Over 60% and you're.
You're putting a borrow is north of 30% you've structurally you know really change and improve the business model and produce some really strong growth in the earning assets yet you're now trading at less than six times and I understand that the macro landscape is certainly challenging but you know as you think about your business.
Here could you just touch on.
How how you're feeling about the outlook for triad and the prospects for the business and and maybe just touch on the valuation and how your how you guys are thinking about that and what the market could be could be missing here.
Yes, sure and so obviously, it's something we have taken note of an end.
I think people have spoken with us would know thats something thats been a source of frustration for us and I appreciate that it is a source of frustration for our investors.
Yeah, Ryan, but we trade at a very low p/e multiple right now despite what we think is a.
Very strong business right now in a business that has created a tremendous amount of value consistently over time.
As to why we trade, where we do in terms of our.
Multiple answer that question I think more for you and for the market we've been trying to communicate.
The structural improvements that we've made to our business through our lease portfolio and refinancing activity.
The shift that's occurred over the last really five or seven years.
Boosted our relative strength of our merger and really created a significant capability and cost gaps between us and our competitors as well as just the structural things that have improved in the industry around credit and the real focus on leasing for most of our customers.
You know, we we look out to the future and we've tried to be pretty clear in our commentary here and in prior meetings that we believe this you know we really jumped to a new level of profitability going forward because of the permanent permanent but the very long duration improvements that we've been able to make in our business over the last two years.
And hopefully the market will start to see that and we built out a lot of our investor materials to show.
Especially like at our Investor day, the runoff value of our lease portfolio as we look at it.
And other things that we think support a strong value for the business.
Hopefully you know as we continue to show strong numbers through a market that's still very good but not quite as extraordinary as last year.
That story will gain traction, but it is that it's a question for you as well as for US I think.
Very fair yeah. Thanks, Thanks for all the thoughts there Brian .
Our next question will come from Liam Burke with B Riley FBR.
May now go ahead.
Good morning, Brian Good morning, Jonathan.
Good morning.
No.
Brian .
You're a lifecycle leases are up to 60%.
We're seeing obviously investment this year normalizing it from last year's peaks.
Do you expect that trend and markedly continue.
Yes.
Well, we'll see I mean, interestingly you know a lot of the increase in fact, probably all of it almost all of the increase in containers on lifecycle leases are not driven by our new container investment most new containers, even if theyre going on 10 plus year leases aren't full.
<unk> life leases, although some of them that we did last year are now, but most of that that increase in that share of lifecycle leases you know certainly over the last five years has come from what we're doing with our used containers and in fact.
The typical rhythm for us has become to Lisa container out and it's.
First lease for a pretty long time, but something less than that for life and then if it comes off hire or if we renew it with the same customer to try to put it on a lease for a second structure that will carry it to the end and so I mean, 60% is a lot like I can't promise is going to go up too much further from there just given the mix of containers in our fleet.
Are the ages, but we do think its something thats become a feature of the business and certainly a feature of how we work with our customers.
We think that number is going to stay pretty high.
Great and on those renewal rates are the same higher or lower when you extend that used container to the full lifecycle.
Yeah. So I mean, right now the market rate for new containers and for used containers that were leasing out currently.
Significantly higher than the average rates in our portfolio and also higher than the rates on leases that are expiring over the next four to five years and so generally there is a tailwind as we're renewing those leases that tailwind gets reflected in different ways, sometimes we reflected in higher rates than we do and we have pushed up a lot of rates over the.
12 months, you know as we've reached the end of this and typically customers can hold onto containers for a while after the lease expires I, usually 12 months or so and so we have to wait till then before we can really kind of force a renewal or increased but we've been doing that sometimes though that that kind of strength in the market we reflect more on duration.
And we're always doing it's actually quite easy on these on these lifecycle leases that are sort of understand the trade off of rate and duration because of the last lease and so if we can get the customer to keep it until year 16 or in some cases, even year 17 or longer that actually has a lot of value, perhaps more value than raising rates on again on a contract that might expire when its 13 or 14.
And so when we think of it in different ways, but we have been able to capture that value for sure over the last 12 months or so.
Great and you are north of 30%, obviously, that's not something that you can carry on sustainable but.
Yes.
The business normalizes congestion is as traffic gets to normal.
Would you expect the <unk> to settle in at a rate higher than your historical levels.
So for sure I think both things you say they are right in the way that we think about it that first we do think the ROE will come down we don't think we're writing business always at 30% plus that reflects very good business that we've written plus.
Streaming high utilization and as talked with Michael earlier, just you know really unprecedented sale prices.
In particular as a sale prices come down we will start to see that ROE come down we think our utilization in fact is going to stay quite high.
At least into the foreseeable future and so yeah, you're right I think we will see utilization come down somewhat but we'll also see it would be.
At a higher range than where it was before the last few years are reflecting again. These things we've been talking about these durable improvements due to our lease portfolio the sort of massive investments in these high value high margin containers and leases over the last few years and again. This just really great refinancing activity and financing cost that we've locked in.
Sure. Thank you Brian .
Our next question will come from Kenn Hoekstra with Bank of America, You May now go ahead.
Hey, great Good morning, Brian John and John .
So.
I guess, it's incredible what you've done the last few years and all the credit for that but but youre now targeting earnings to rollover and I don't I think it's been maybe seven or eight quarters. Since we've heard you kind of talk about a sequential decline. So maybe just talk about that for a second what are the terms for the current boxes last year.
Yes through the last couple of quarters, you talked about up to 13 years I think you just mentioned.
A 10 year timeframe is that is that what youre looking at now from from shippers is it now 10 years, and maybe talk a little bit about the lease rates within that is there anything different in terms of where pricing is now versus where it was.
Yes, so we put some charged into our presentation looking at what's happened with container prices and Thats pretty similar to what's happened with market leasing rates.
As we've seen the market come from nearly unprecedented shortages of containers to just tight.
The premiums of the factories can charge for getting access to their capacity has come down and that's reflected in lower market leasing rates, but I think it all depends on the perspective, you're measuring against and so container prices and market leasing rates are lower than they were in July of 2021, which was a condition we've never seen before.
But if you compare back over my career, which now stretches back like 23 years with this company I had never seen container prices at where they are today until 2021.
So container prices and that's reflected in market leasing rates as well I mean 20, something year highs with the exception of last year.
And so when you look at the market, we say boy. This is actually a pretty nice market and if you had transported us from 2015 to hear it would be less just unbelievable.
But obviously compared to just really unprecedented shortage conditions last year unprecedented pricing is down a little bit from that.
In terms of our earnings.
I'd say overall, we were very optimistic on our financial performance over the rest of this year and into the longer term and something we've I think probably repeated a few times and.
And I guess, yes, we did guide that we think our second quarter will be slightly lower than the first quarter, mainly again as these sale prices start to come a little bit back towards Earth.
But we're still going to be we think at levels of profitability that are really quite exceptional.
Very high profitability relative to our history very high returns on equity.
And getting maybe back to Michael's question early on still very low.
Multiples are.
Relative to our share price and so we keep trying to say we think it's not a question of what's the trajectory of the earnings it's where are they now and how do they relate to the two.
The value of the business are and again, we think theyre going to stay if you know the way we the things we've done to our business. Our durable like we expect we think earnings are going to stay very high in absolute terms and very high relative to the to the current value of the business, which frankly is one reason why we've been buying the shares.
No no I understand that but I just want to understand what's changed.
You used to put in the release or in the charts, what what was the term of new boxes. It fluctuated sure whats the timeframe for new boxes, yeah. So let's say most of the deals we're doing right now or in the 10 year duration.
And it's down a little bit from most of 2021 was more kind of like 12 or 13.
But I think that really just reflects the container prices coming back down to Earth, a little bit you know that when container prices are.
Again still very high but no longer at yes.
It's close to $4000, it's easier to spread the premium than it was before and so.
But again, we would look at others.
But no other year in my history, where we've done 10 year leases as the norm and so again, we still look at it and say, it's a pretty attractive lease out environment.
Even if not quite as strong as 2021.
So then the returns on these boxes are they the same Brian or I get it right. If you can distribute it in a shorter period of time or I guess the lease rate return levels.
Similar given that I mean again I think there are strong.
It's.
I have to say the same thing as before that that the returns are probably getting a little bit down from the levels. We got in 2021, I mean, there are certainly a few quarters there.
Where we were more.
Capped by relationship reasons. You know then then ability to get the deals done.
Just because the boxes, where needed so badly by our customers and the customers of our customers.
Now it's much more of a regular market, where multiple leasing companies can supply containers to the to the inquiries that are out there, but again pricing is reasonable and again, reflecting a relatively tight market for.
For containers and just the strength of our business you know, we don't really feel we have to reach.
For things, but certainly again I'd just characterize it is we think the market is constructive. It's there's a lot of things that are positive for us, especially the container prices and leasing rates and the tightness of container supply.
But not quite as extraordinary as 2021.
Yes, and I guess just to understand the sustainability right I mean, you still have very little.
I don't know if you had one of the charts that you've had before right where you have just very little coming due in this year next year is there a chart that.
That highlights.
There is Ken theirs.
Put it in the appendix of it's actually should be in the presentation.
Yes, it's page.
<unk> in the trial.
We didn't put it in the and this hasn't been there in a few quarters, just because there's not that much of a story to it that there is.
When you look at the explorations relative to the fleet, it's a pretty small percentage of our fleet that.
It does expire over the next few years for the dry containers the market leasing right now as I've talked about earlier.
Significantly above the rates of the.
Leases that are expiring I mean generally it's a good news story and I think we kind of replaced a little bit in the in the main presentation.
Things that John Burns talked about just a very high percentage of our containers on long term lease and the long duration of those leases and this chart kind of falls out from that but.
But yes, we still think people do like to see it and it's in there.
Yes, no I think I think that's a great chart just to highlight that theres not much really coming coming due.
Just to clean up questions. If I can one you noted the buyback was one 7 million shares up to April 29 is there a quarterly number I think on the cash flow I got $81 million. Instead of 110 is there a share number there for the quarter, yes. There is.
John is flipping through it now its it chosen NICU and frankly, it's funny, we were debating what numbers are most useful for investors to put in there and initially we had like all four numbers like what are we done since September what's the year to date.
First quarter, but.
But yes, we can John quickly scrambling for that.
But it's.
131.
All right perfect. Thanks, sorry for the technical one.
Just so I understand John you said something interesting at the beginning of the conversation I just want to make sure I understood the balance sheet asset asset base decline sequentially right. So if I look at net assets gross assets, but you said something that is that due to the larger lease.
Use or is that something different I just want to understand what you were you were throwing out there no. What I was saying is that we think for the for the first half of the year, adding on the second quarter and based on what we've already had to date, we're probably at replacement levels. So on AR.
Full year basis at the end of the second quarter, we think will be roughly flat on a revenue earning asset basis.
Acceptances through the end of the first quarter was lower than what we've done.
Half of what we order that was on low end. So we've got more more containers coming in we think will be flat on an overall asset base for the first half of the year.
To keep it flat you have to accelerate capex.
The orders the orders have been made and we have we think more orders coming so just the acceptance slowly actually units coming into the fleet was was lower.
And then the orders placed if you will.
Okay. So let me just the way to think of it Ken.
Yes.
Yes, I think we when we announced the press release that we had ordered something like 400.
$25 million or so of Capex a year to date, yes, most of that Capex should be delivered by June 30th and probably a little bit on top of that and we've shown another chart that our replacement capital spending is about $900 million per year. So if you think about <unk>.
450 is being.
Where we are for the first half that's right at kind of the replacement level, but just given the timing of our orders and timing of delivery more of that 400 and change its going to be delivered in the second quarter and the first quarter, which is why you saw a slight decrease sequentially from December 31 to March 31, and then probably a slight increase sequentially from March 31 to June 30.
Making the December 31 to June 30 relatively flat.
Got it got it that's helpful. Just want to make sure I wasn't missing something thank you very much for the time guys. Appreciate it.
Yeah. Thanks, guys.
Again, if you have a question. Please press Star then one on.
Our next question will come from John 10, one thing with CGS Securities You May now go ahead.
Hi, its actually Larry So I don't know how that got that name, but that's great. It works.
Hey, good morning, guys.
One of my colleagues I don't have to go to them, but just a couple of follow ups here just on the on the earnings outlook. I know you only give one quarter outlook and not to define what a modest decline means that someone doesn't sound like your earnings are quote unquote rolling over but can.
Can you just you know.
Worst case scenario, obviously, it seems like you know not worst case scenario, but a sort of a negative look to me. It seems like you can't get too.
Can't fall too much over the next couple of years, if I just look at you only have it looks like 5% or so of your containers coming off contract. The next couple of years. So.
Obviously, we seem to be in a holding pattern today shippers don't know kind of know where the direction. We're going to go so no one's dropping off so fast so in the meantime, your own and great returns and Youre buying back shares and it sounds like that will continue in the short run you just replace your containers.
Just to add a minimum and you use your cash flow for for buybacks until we sort of get better direction is that a fair way to look at it and then even if things get really bad there arent that many containers that are coming off contract right. So just.
I'm just trying to assess I think the market perception is just.
That we're going to head into a recession and demand is going to fall out of bed, but even if that happens it doesn't seem like you guys are.
There's a tremendous risk for you.
Sure. So when we talk publicly we do like to limit it to one quarter.
Yes, maybe just risky for us to put too much out there, but we also do try to give help people think about how to expect general trends in the business to play out and we do a lot of scenario modeling internally, we have our forecasting model that's built up from a lease level.
And we then turn that into a long term financial forecast.
And our general view is that it's going to be our utilization is going to be extremely resilient against market conditions because of the long duration of the portfolio and so again. These are financial models and they are subject to you know the assumptions, we make but but our general view is that even if market conditions were to turn extremely negative which in fact, we we don't we don't really think.
You know that we're going to see utilization to stay at historically high levels into the past 2022, I mean, well into the medium term and beyond perhaps.
And that typically is the most important driver of our earnings is just what percentage of containers are on higher generating revenue not accumulating costs and they're on not just on the on leased a lot of containers on very profitable leases.
And again that sustains our profitability.
Beyond this year as well.
The greatest uncertainty and I think that the part of our income statement, most subject to market conditions as our gains on sale.
We have talked about that we do expect those to normalize just as prices come back to Earth.
Then there'll be some offset as volumes pick up there.
But then offsetting that that sort of negative pressure should be as you mentioned, the decreasing share count and also growth overtime.
That again some of the longer term charts. We showed indicate that we don't need great market conditions to drive value in this business, we grow it across a wide range of conditions and create value across the same wide range of conditions. So so again, we look at and we feel we're in a really great place. We had a historic run over the last 21 months that allowed us to build a lot of long term value.
The market out there still remains underpinned by two very strong demand drivers.
Hi, goods consumption and logistical bottlenecks.
I'm, putting that together you know, we've actually got a pretty optimistic outlook of where we go from here.
What about in terms of some inflation, obviously most of that inflationary pressures, obviously pretty much help to you right now in terms of pricing and your your interest rates are mostly fixed now so that's not hurting you what it is.
As you know in terms of direct cost.
And inflationary periods as it does that I can't imagine the cost of store container repair a container goes off as much as overall inflation.
Or does it so are you at risk as these things come you know is direct cost.
Potentially rise as capacity.
<unk> falls a little bit.
Do you have a higher risk higher cost this time around with a higher inflationary period than say two years ago or or not really.
Let's say in general we think inflation is value, creating for the business, mainly driven by the fact that we have.
Lots of real assets and containers that we re market to re lease them or we remarket them at the end of sale on those values.
We are very correlated with inflation.
Those containers are financed primarily with nominal debt with fixed interest rates and so yeah.
While the value of our liability is doesn't change very much as inflation goes up and the value of our assets doesn't and that's sort of the main reason why we think get inflation creates value for us and for our shareholders.
I think there is inflationary impacts on direct operating expenses like repairs and storage, but those are they can be significant in terms of the year to year changes, but it's still a.
Relatively small share of our expense base I mean, the vast majority of our expenses are ownership costs.
Of container depreciation and interest expense and again the depreciation of course is fixed because we have purchased containers for a historical number and interest expense again as locked in very well through our through our debt portfolio and hedging. So so again, we feel that overall, it's a net positive.
And just last question what do you make if anything I know, it's sort of a very short time.
<unk> last couple of years most of the container purchases have certainly been biased towards leasing companies themselves.
Last couple of quarters or at least this year your day it looks like the shippers have been buying.
A larger percentage and I realize it's a small number of short time period, but do you make anything of that and maybe it's just that their balance sheets have improved their short term so they're using some of their cash.
Any thoughts on that.
For sure. So I think it's a number of things happening.
For sure the shipping lines have radically improve their capital structures over the last year and a half and frankly, most are carrying substantial net cash balances right now.
And so when you have lots of extra cash and a lot of the shipping lines have paid down the debt.
That's pre payable easily.
They run out of time.
Uh huh.
I'm not sure can you still hear us operator Anthony.
Yeah, that's actually the main speaker line playing the music.
Okay.
See.
We'll carry on perhaps over the nice music here for that way I see.
It might be John's line.
Let's see here.
Why do you want to just try to cut it off if you can yeah that was.
John It's Brian .
Yes. Thank you yeah, sorry for the interruption everyone.
Oh, My Gosh, where were we.
Oh Oh.
Oh, yes, alright. Thanks. Thank you reminded me, we're talking about the mix of.
Yes shipping line purchases versus leasco purchases and sort of saying Theres number of factors driving it.
One being that the.
The shipping lines are carrying a lot of cash because of their very strong profitability over the last few years I think and that is driving an increase in purchasing also the shipping lines do tend to do most of their buying early in the year you know unlike us the shipping line set typically annual budgets for buying containers.
They typically do that purchasing ahead of the peak season, which starts to kind of get going in the second quarter and so we often do see this higher buying for shipping lines.
As you get towards the.
The first part of the year and then I think there's also just a little bit of sort of price uncertainty for leasing companies, we think of our container purchases as investments and we want to make sure that we can lease them out for rates.
Rates that match, the investments that we're making and where the shipping lots of things to look at the containers as more of just something you need to have to run your business and as prices been changing in our leasing companies are trying to be strategic about want to jump in we have been coming in selectively to maintain our capability to supply, but I think that also when prices are changing leasing companies. It can be a little more cautious in their shipping lines.
Yeah.
Operator are you there yes.
So that will conclude our question and answer session I would like to turn the conference back over to Brian Sandy CEO for any closing remarks.
Yeah, I just like to thank everyone for your interest in Triton and your support I apologize a little bit for our technical challenges there at the end, but we're looking forward to talking with you soon thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.