INVESTOR CONFERENCE CALL October 24, 2019 1 DISCLAIMER - - PowerPoint PPT Presentation

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INVESTOR CONFERENCE CALL October 24, 2019 1 DISCLAIMER - - PowerPoint PPT Presentation

THIRD QUARTER 2019 INVESTOR CONFERENCE CALL October 24, 2019 1 DISCLAIMER Forward-Looking Statements Certain statements in this presentation, other than statements of historical facts, including statements regarding our strategy, future


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THIRD QUARTER 2019 INVESTOR CONFERENCE CALL

October 24, 2019

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DISCLAIMER

Forward-Looking Statements Certain statements in this presentation, other than statements of historical facts, including statements regarding our strategy, future operations, future financial position, future revenues, future costs, prospects, plans and objectives of management are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that include the words ”expect,” “estimate,” “anticipate,” “predict,” "believe," “think,” “plan,” “will,” “should,” “intend,” “seek,” “potential” and similar expressions and variations are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. All forward-looking statements address matters that involve risks and uncertainties, many of which are beyond our control. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in such statements and, therefore, you should not place undue reliance on any such statements. These factors include, without limitation, economic, business, competitive, market and regulatory conditions and the following: decreases in the demand for leased containers; decreases in market leasing rates for containers; difficulties in re-leasing containers after their initial fixed-term leases; customers' decisions to buy rather than lease containers; dependence on a limited number of customers for a substantial portion of our revenues; customer defaults; decreases in the selling prices of used containers; extensive competition in the container leasing industry; difficulties stemming from the international nature of Triton’s businesses; decreases in the demand for international trade; disruption to our operations resulting from political and economic policies of the United States and other countries, particularly China, including but not limited to the impact of trade wars and tariffs; disruption to our operations from failure of or attacks on our information technology systems; disruption to our operations as a result

  • f natural disasters, compliance with laws and regulations related to economic and trade sanctions, security, anti-terrorism, environmental

protection and corruption; ability to obtain sufficient capital to support growth; restrictions imposed by the terms of our debt agreements; changes in the tax laws in Bermuda, the United States and other countries; and other risks and uncertainties, including those listed under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 (the “Form 10-K”) or other reports we file with the United States Securities and Exchange Commission. The foregoing list of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included herein and elsewhere, including the risk factors in our Form 10-K. Any forward-looking statements made herein are qualified in their entirety by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us or our businesses or

  • perations. Except to the extent required by applicable law, we undertake no obligation to update publicly or revise any forward-looking

statement, whether as a result of new information, future developments or otherwise. Certain financial measures presented in this presentation are identified as not being prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Please refer to the Appendix hereto for a reconciliation of such non-GAAP measures to their most comparable GAAP measures.

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HIGHLIGHTS

 Triton reported third quarter Adjusted net income of $85.0 million, or $1.16 per share » Q3 annualized return on equity of 16.1%  Leasing demand remained slow in Q3, during traditional peak quarter » Though container supply / demand generally balanced, and new production volumes down  Using our strong cash flow to drive shareholder value in ways other than fleet growth » Repurchased 8.7 million shares since August 2018, leading to a 10.8% reduction » Repurchased remaining partnership interests in Triton Container Investments in 1H 2019 » Declared quarterly dividend of $0.52 per common share  Expect leasing activity to remain slow for next several quarters, but should set stage for recovery

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OPERATING PERFORMANCE

 Leasing demand has been weak since Q4 2018, but Triton’s operating performance remains solid » Utilization averaged 96.7% in Q3 » Used container sale prices have drifted lower but remain well above accounting residuals  New leasing activity remained unseasonably slow in Q3 » Pick-ups and lease transaction activity slow despite Q3 being traditional peak season » Drop-offs increased from Q2, though still well controlled » New container investment opportunities limited – Number and size of new lease transactions materially lower than 2017 and 2018 – Several leasing companies competing aggressively for limited deals – Triton allocating equity cash flow to higher yielding investments  Customers and market forecasters downgrading expectations for 2019 » Now generally projecting containerized trade growth to be just slightly positive in 2019 » Reflects lack of peak season surge and softening economic conditions  New container inventory starting to decrease in response to reduced production

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90% 92% 94% 96% 98% 100%

Ending Quarterly Utilization (CEU)

40% 60% 80% 100% 120%

Overall Lease Rate Index (CEU)

(100,000) (50,000) 50,000 100,000 150,000 200,000 250,000

Dry Container Pick-up / Drop-off Activity (Units) (excluding Sale Leaseback)

Pick-Ups Drop-Offs Net

50% 60% 70% 80% 90% 100% 110% 120% 130% 140% 150%

Used Dry Container Sales Price Index (1)

20' Price Index 40'HC Price Index

TRITON’S KEY OPERATING METRICS

Ending Quarterly Utilization (CEU) Dry Lease Rate Index (CEU)

Dry Container Pick-up / Drop-off Activity (Units) (1)

Used Dry Container Sales Price Index

(1) Excludes Sale-leaseback units.

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MARKET CONDITIONS

0% 2% 4% 6% 8% Growth Rate Container Trade Growth Global GDP Growth

Global GDP and Container Trade Growth World Container Fleet and Leasing Share

200,000 400,000 600,000 800,000 1,000,000 1,200,000 China Dry Van New Production Inventory (TEU) Shipping Inventory Leasing Inventory

New Dry Factory Inventory Triton’s Dry Depot Lease Inventory in Asia

  • 50,000

100,000 150,000 200,000 250,000 Triton’s Asia Inventory (TEU) Unbooked Asia Dry Inventory Booked Asia Dry Inventory

Sources: Shipping and Leasing Factory Inventory estimates provided by commonly used informal surveys by factory inspectors. Source: Internal container management reports.

Demand Supply

Sources: Container Trade Growth 2014-2016: Alphaliner Monthly Monitor – October 2019. Container Trade Growth 2017-2020E: average of estimates from Alphaliner Monthly Monitor – October 2019 and Clarksons Container Intelligence Monthly – September 2019. GDP Growth: International Monetary Fund, October 2019 World Economic Outlook Update.

0% 10% 20% 30% 40% 50% 60% 10 20 30 40 50 Leasing Company (%) TEU (MM) Leasing Company Owned Shipping Line Owned Leasing (%)

Source: Drewry Container Census & Lease Industry Annual Report 2019/20.

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CONSOLIDATED STATEMENTS OF ADJUSTED NET INCOME (*)

(*) Adjusted net income is a non-GAAP financial measure. See Appendix. (1) Excludes transaction costs, gain on sale of building, debt termination expense, and net unrealized loss or gains on derivative instruments. (2) Excludes foreign income tax adjustment and tax benefit from vesting of restricted shares.

(In thousands, except earnings per share)

Q3 '19 Q3 '18 % Change YTD 9/2019 YTD 9/2018 % Change Total leasing revenues 336,668 $ 350,078 $ (3.8%) 1,016,093 $ 994,946 $ 2.1% Trading margin 4,150 5,810 (28.6%) 12,233 12,795 (4.4%) Net gain on sale of leasing equipment 6,196 7,055 (12.2%) 22,184 27,378 (19.0%) Depreciation and amortization 133,367 141,337 (5.6%) 403,324 405,664 (0.6%) Interest and debt expense 76,862 81,894 (6.1%) 241,269 235,279 2.5% Total ownership costs 210,229 223,231 (5.8%) 644,593 640,943 0.6% Direct operating expenses 20,457 11,489 78.1% 55,356 32,732 69.1% Administrative expenses 18,496 19,964 (7.4%) 56,671 60,318 (6.0%) Provision for doubtful accounts 126 677 (81.4%) 505 551 (8.3%) Other (income) expense, net (116) 492 (123.6%) (2,047) (752) 172.2% Income attributable to noncontrolling interest

  • 1,393

(100.0%) 592 5,249 (88.7%) Adjusted Pretax Income (1) 97,822 $ 105,697 $ (7.5%) 294,840 $ 296,078 $ (0.4%) Income tax expense 8,164 10,857 (24.8%) 23,678 32,524 (27.2%) Adjusted Net Income (1)(2) 89,658 $ 94,840 $ (5.5%) 271,162 $ 263,554 $ 2.9% Less: dividend on preferred shares 4,708

  • N/A

7,038

  • N/A

Adjusted Net Income Attributable to Common Shareholders (1)(2) 84,950 $ 94,840 $ (10.4%) 264,124 $ 263,554 $ 0.2% Adjusted net income per common share 1.16 $ 1.17 $ (0.9%) 3.50 $ 3.27 $ 7.0% Weighted average number of common shares outstanding - diluted 73,249 80,728 (9.3%) 75,557 80,620 (6.3%) Return on equity 16.1% 16.9% 16.5% 16.3%

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Q3 2019 PROFITABILITY DRIVERS

 Revenue earning assets down 4.9% from Q3 2018  Leasing revenue down 3.8%  Utilization averaged 96.7% in Q3 2019, down 2.0% from last year  Direct operating expenses up $9.0 million, primarily due to higher storage costs from an increase in idle units  Gains on disposal and trading margin $10.3 million in Q3 2019, down by $2.5 million from Q3 2018  Reflects decrease in price partially offset by an increase in volume  Purchase accounting provided a $13.0 million benefit in Q3 2019, up from $5.0 million in Q3 2018  Adjusted GAAP tax rate of 8.3%, down from 10.3% in Q3 2018

Fleet size Utilization Disposal activity Purchase accounting and GAAP tax rate Share count

 Average diluted shares outstanding decreased by 7.5 million, or 9.3% from Q3 2018 due to share repurchase program

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Q2 TO Q3 SEQUENTIAL CHANGE BENEFITS FROM NON-OPERATIONAL ITEMS

 Q3 2019 Adjusted EPS up $0.01 despite the slow lease demand, reflecting: » Our well protected lease portfolio » 2.6% reduction in average outstanding common shares » Timing of several annual expense items  $7 million negative impact to Adjusted net income from slow container demand including: » Lower utilization » Increased operating expenses » Reduced gain on disposals  $5 million benefit to Adjusted net income from timing of annual expense items including: » Lower lease intangible amortization » Another vintage of containers fully depreciated » Q2 annual Board of Directors share grants not repeated in Q3

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10 $0 $250 $500 $750 $1,000 $1,250 $1,500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 LTM Sep-19

($MM)

CASH FLOW AND SHAREHOLDER VALUE CREATION

Steady Value Creation (5)

(4) All periods exclude purchase accounting adjustments. Net Debt defined as Total Debt plus

Equipment Purchases Payable less Cash and Restricted Cash.

Cash Flow Before CapEx (1)(2)(3)

(1) See Footnote 1 in the Appendix. (2) See Footnote 2 in the Appendix (3) Reflects purchase accounting adjustments for 2017, 2018 and LTM 9/30/19.

Net Debt as % of REA (4)

60% 70% 80% 90% 100% Q4 '07 Q4 '08 Q4 '09 Q4 '10 Q4 '11 Q4 '12 Q4 '13 Q4 '14 Q4 '15 Q4 '16 Q4 '17 Q4 '18 Q3 '19 Net Debt as % of REA

Industrial & Commodity Recession Financial Crisis

$- $10 $20 $30 $40 $50 $60 $70 Q3 '06 Q3 '07 Q3 '08 Q3 '09 Q3 '10 Q3 '11 Q3 '12 Q3 '13 Q3 '14 Q3 '15 Q3 '16 Q3 '17 Q3 '18 Q3 '19 $ Per Share

(5) Adjusted tangible book value defined as Shareholders Equity, less Goodwill plus Net Deferred

Tax Liability plus Net Swap Liability, before purchase accounting adjustments. Reflects TAL standalone for Q2 2016 and prior periods. GAAP BVPS: $28.65 Adj. TBV: $36.12

Cumulative Dividends Per Share Adjusted Tangible Book Value Per Share Book Value Per Share Trade War

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FINANCIAL PERFORMANCE RESILIENT AND DRIVING VALUE WITH CASH FLOW

 Triton’s financial performance remains solid despite more challenging market conditions in 2019 » ROE 16.1% in Q3; 16.5% 2019 YTD » Triton’s performance supported by: – Triton’s cost and capability advantages – Triton’s strong lease portfolio – The short order cycle for containers  Current decrease in demand does not present same mix of challenges we faced in 2015 / 2016 » Experienced wave of high-rate lease expirations in 2015 / 2016; current lease exposure limited » HRC steel prices in China dropped below $300 per ton in 2015; currently near $500 per ton » Current profitability supported by $3.2 billion of high-value investment in 2017 and 2018 » Triton’s cost and capability advantages extended by 2016 merger » Expect Adjusted net income will decrease through the upcoming slow season, but expect financial performance will remain solid  Using our strong cash flow to drive shareholder value in ways other than fleet growth » Cash flow before capex close to record level in 2019 » Redirecting cash flow from new container procurement to repurchasing shares – Purchased almost 11% of our shares since August 2018 – Purchasing shares below Adjusted tangible book value and below projected run-off value

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OUTLOOK AND CONCLUSIONS

 Third quarter operating and financial performance was solid » Q3 Adjusted EPS of $1.16 per share » Adjusted ROE of 16.1% » Not facing the same mix of challenges as in 2015 / 2016  New container investment limited in 2019, but Triton’s strong cash flow being put to good use  Expect leasing demand to remain limited for next several quarters, and expect Adjusted EPS to decrease from the third to fourth quarter of 2019  Decreased new container production volumes setting the stage for recovery, and expect Triton’s performance to remain solid  We continue to have many levers to drive shareholder value

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Appendix

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CONSOLIDATED STATEMENTS OF INCOME

(Dollars in 000's, except earnings per share)

Q3 '19 Q3 '18 YTD 9/2019 YTD 9/2018 Total leasing revenues 336,668 $ 350,078 $ 1,016,093 $ 994,946 $ Trading margin 4,150 5,810 12,233 12,795 Net gain on sale of leasing equipment 6,196 7,055 22,184 27,378 Net gain on sale of building

  • 20,953

Depreciation and amortization 133,367 141,337 403,324 405,664 Interest and debt expenses 76,862 81,894 241,269 235,279 Total ownership costs 210,229 223,231 644,593 640,943 Direct operating expenses 20,457 11,489 55,356 32,732 Administrative expenses 18,496 19,966 56,671 60,293 Provision for doubtful accounts 126 677 505 551 Other (income) expense, net (116) 492 (2,047) (752) Unrealized loss (gain) on swaps and debt termination expense 2,374 1,670 5,185 876 Total operating and other costs 41,337 34,294 115,670 93,700 Income before income taxes 95,448 $ 105,418 $ 290,247 $ 321,429 $ Income tax expense 4,845 9,789 20,737 36,182 Net income 90,603 $ 95,629 $ 269,510 $ 285,247 $ Less: income attributable to noncontrolling interests

  • 1,393

592 5,249 Less: dividend on preferred shares 4,708

  • 7,038
  • Net Income attributable to common shareholders

85,895 $ 94,236 $ 261,880 $ 279,998 $ Net income per common share - diluted 1.17 $ 1.17 $ 3.47 $ 3.47 $

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RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION

(1) Annualized Adjusted net income was calculated based on calendar days per quarter. (2) Average Shareholders' equity was calculated using the quarter’s beginning and ending Shareholder’s equity for the three-month ended periods. Average Shareholders’ equity for the full year 2018 was calculated using the ending Shareholder’s equity for each quarter and the previous year-end of 2017. Average shareholders’ equity excludes preferred shares commencing in Q1 2019. (In thousands, except earnings per share) Q1 '18 Q2 '18 Q3 '18 Q4 '18 2018 Total Q1 '19 Q2 '19 Q3 '19 Net income attributable to common shareholders 80,892 $ 104,870 $ 94,236 $ 69,557 $ 349,555 $ 91,914 $ 84,071 $ 85,895 $ Add (subtract): Debt termination expense & unrealized (gain) loss on derivative instruments, net (1,052) 347 1,483 5,050 5,828 903 1,872 1,958 Transaction and other (income) costs (26) (1) 2 104 79

  • Foreign income tax adjustment
  • (881)
  • (881)
  • 414

(931) Tax adjustments related to intra-entity asset transfer

  • 24,728

24,728

  • Gain on sale of building
  • (16,316)
  • (16,316)
  • Tax benefit from vesting of restricted shares
  • (1,972)

Adjusted net income attributable to common shareholders 79,814 $ 88,900 $ 94,840 $ 99,439 $ 362,993 $ 92,817 $ 86,357 $ 84,950 $ Adjusted net income per common share - Diluted 0.99 $ 1.10 $ 1.17 $ 1.25 $ 4.52 $ 1.19 $ 1.15 $ 1.16 $ Q1 '18 Q2 '18 Q3 '18 Q4 '18 2018 Total Q1 '19 Q2 '19 Q3 '19 Adjusted net income 79,814 $ 88,900 $ 94,840 $ 99,439 $ 362,993 $ 92,817 $ 86,357 $ 84,950 $ Annualized adjusted net income (1) 323,690 356,577 376,267 394,513 362,993 376,425 346,377 337,030 Average common shareholders' equity (2) 2,104,895 $ 2,168,053 $ 2,230,042 $ 2,230,590 $ 2,174,714 $ 2,184,361 $ 2,135,817 $ 2,092,294 $ Return on equity 15.4% 16.4% 16.9% 17.7% 16.7% 17.2% 16.2% 16.1%

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ADJUSTED TANGIBLE BOOK VALUE PER SHARE AS OF 9/30/19

(In thousands, except per share amounts)

Combined Purchase Accounting Consolidated

Total assets 10,018,658 $ (216,775) $ 9,801,883 $ Total liabilities 7,577,738 (83,834) 7,493,904 Preferred shareholders' equity 230,000

  • 230,000

Common shareholders' equity 2,210,920 (132,941) 2,077,979 Total equity 2,440,920 (132,941) 2,307,979 Total liabilities and equity 10,018,658 $ (216,775) $ 9,801,883 $ Common shares outstanding 72,531 Book value per share $28.65 Reconciliation to adjusted tangible book value Common shareholders' equity 2,210,920 $ Less: Goodwill (34,599) Plus: Net deferred tax liability 368,876 Plus: Net swap liability 74,896 Adjusted tangible book value 2,620,093 $ Adjusted tangible book value per share $36.12

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LONG TERM LEASE EXPIRATIONS

Dry

Notes:

  • MCEU “Market Cost Equivalent Unit” reflects an adjustment to CEU levels to reflect current reefer prices.
  • Excludes dry and reefer containers that will be 13 years or older upon expiration.

Percent of Fleet 6.3% 1.9% 3.1% 2.5% 4.5% 5.9%

Refrigerated

Percent of Fleet 2.5% 0.1% 2.1% 1.7% 2.1% 1.9%

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EQUITY CASH FLOW

Internal cash flows, at constant leverage, support high levels of growth and / or stock buybacks

(In thousands, except per share amounts) LTM Sep 30, 2019 Adjusted EBITDA $1,274,063 Principal payments on finance leases 72,914 NBV of container disposals 174,006 Major cash in flows 1,520,983 Interest and debt expense 326,649 Annual preferred stock dividends 18,832 Cash flow before capex 1,175,502 No Capex Replacement Capex (3) Max Capex (4) Capex $0 $789,718 $939,676 Debt repayment to hold leverage constant (1) 592,289 NM NM Equity cash flow 583,213 385,784 NM Per share $8.04 $5.32 NM Cash flow yield (2) 22.3% 14.8% NM Asset growth at constant leverage (8.7%) 0.0% 10.4% Annualized dividends per share $2.08 Dividends $150,864 Dividend yield (2) 5.8% Stock buyback capacity (after dividends) 432,348 234,919 NM % reduction in shares outstanding (2) 16.5% 9.0% NM

(1) Represents 75% of depreciation, NBV of disposals and principal payments on finance leases (2) Based on closing stock price of $36.05 on 10/23/2019 (3) Replacement capex represents depreciation, NBV of disposals and principal payments on finance leases (4) Capex figure relates to growth capex. Assumes leverage of 75% debt to assets and after dividends

Capex Scenarios

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RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION

(In thousands) LTM Sep 30, 2019 Income before income taxes 396,131 Add: Unrealized loss on derivative instruments 4,162 Debt termination expense 6,667 Transaction and other costs 116 Less: Income attributable to non-controlling interest 2,460 Adjusted pre-tax income 404,616 Interest and debt expense 326,649 Depreciation and amortization 542,798 Adjusted EBITDA 1,274,063 Principal payments on finance leases 72,914 NBV of container disposals 174,006 Major cash in flows 1,520,983 Interest and debt expense 326,649 Preferred stock dividends (*) 18,832 Cash flow before capex $1,175,502 (*) Annual dividend payment on preferred equity Series A of $86.25M @ 8.5% and Series B of $143.75M @ 8.0%

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FOOTNOTES

  • 1. The combined financial information from 2016 and prior periods does not reflect results on a GAAP basis. GAAP financial

statements reflect only the TCIL operations prior to the merger on July 12, 2016, and can be found in the Company’s 10-Q and 10-K filings.

  • 2. Cash Flow Before CapEx defined as Adjusted EBITDA (defined as net income before interest and debt expense, income tax

expense and depreciation and amortization, and excludes transaction costs, net loss (gain) on interest rate swaps, insurance proceeds, gain on sale of building and the write-off of deferred financing costs) less interest and debt costs plus NBV of disposals and principal payments on finance leases.