THIRD QUARTER 2018 INVESTOR CONFERENCE CALL. November 2, 2018

Transcription

1 THIRD QUARTER 2018 INVESTOR CONFERENCE CALL November 2,

2 DISCLAIMER Forward-Looking Statements Certain statements in this presentation, other than purely historical information, 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," "intend," "plan," "believe," "project," "anticipate," "will," "may," "would" and similar statements of a future or forward-looking nature may be used to identify forward-looking statements. All forward-looking statements address matters that involve risks and uncertainties, many of which are beyond Triton International Limited s ( Triton ) 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 our businesses; decreases in the demand for international trade; disruption to our operations resulting from the political and economic policies of the United States and other countries, particularly China, including increased tariffs; disruption to our operations from failures of or attacks on our information technology systems; 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 our growth; restrictions on our businesses imposed by the terms of our debt agreements; changes in the tax laws in the United States and other countries; and other risks and uncertainties, including those risk factors set forth in the section entitled Item 1A "Risk Factors" beginning on page 14 of Triton International Limited s Annual Report on Form 10-K for the year ended December 31, 2017, as updated from time to time by Triton International Limited s Quarterly Reports on Form 10-Q or other comments of Triton International Limited on 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. 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 Triton or its business or operations. 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. 2

3 HIGHLIGHTS Triton reported third quarter Adjusted net income of $94.8 million, or $1.17 per share» EPS increase of 6% from Q and 46% from Q3 2017» Generated an annualized return on equity of 16.9% in third quarter Increase in profitability driven by continued strong operating performance and ongoing fleet growth Entering slow season for dry containers, though supply / demand balance still generally favorable Triton declared a dividend of $0.52 per share As of 10/31/18, Triton has repurchased approximately 1 million shares under recent authorization for an average price of $30.84 per share 3

4 OPERATING PERFORMANCE Triton s operating performance was strong in the third quarter» Net container pick-up activity high throughout the quarter» Utilization remained at high level» Used container sale prices strong Entering slow season for dry containers, though market conditions still generally favorable» Net container pick-up activity reduced after October Asian holiday period ( Golden Week )» New container prices and market lease rates have decreased as demand has cooled seasonally» But Triton s key operating metrics remain strong, and container supply still well-controlled We are on track to have another successful year of value-added investment and growth» Benefitting from solid trade growth, high share for leasing and outperformance by Triton» Continue to focus on reducing exposure to changes in market conditions by extending lease durations, and average initial lease duration for new containers is approximately 7 years 4

5 TRITON S KEY OPERATING METRICS 100% Ending Quarterly Utilization (CEU) Ending Quarterly Utilization (CEU) 120% Dry Lease Rate Index (CEU) Overall Lease Rate Index (CEU) 98% 100% 96% 80% 94% 92% 60% 90% 40% Dry Container Pick-up / Drop-off Activity (Units) (1) 250, , , ,000 50,000 0 (50,000) (100,000) Dry Container Pick-up / Drop-off Activity (Units) (excluding Sale Leaseback) 150% 140% 130% 120% 110% 100% 90% 80% 70% 60% 50% Used Dry Container Sales Price Index Used Dry Container Sales Price Index (1) Pick-Ups Drop-Offs Net 20' Price Index 40'HC Price Index (1) Excludes Sale-leaseback units. 5

6 Supply China Dry Van New Production Inventory (TEU) Triton s Asia Inventory (TEU) Demand Growth Rate TEU (MM) Leasing Company (%) MARKET CONDITIONS Global GDP and Container Trade Growth 8% 50 World Container Fleet and Leasing Share 60% 6% 40 50% 4% 2% % 30% 20% 0% 10 10% 1,200,000 1,000, , , , ,000 0 Container Trade Growth New Dry Factory Inventory Global GDP Growth Sources: Container Trade Growth : Alphaliner Monthly Monitor October Container Trade Growth E: average of estimates from Alphaliner Monthly Monitor October 2018 and Clarksons Container Intelligence Monthly September GDP Growth: International Monetary Fund, October 2018 World Economic Outlook Update. 0 0% Leasing Company Owned Shipping Line Owned Leasing (%) Source: Drewry Container Census & Lease Industry Annual Report 2018/19. Triton s Dry Depot Lease Inventory in Asia 250, , , ,000 50,000 - Shipping Inventory Leasing Inventory 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. 6

7 INVESTMENT ACTIVITY Have ordered approximately $1.5 billion of containers for delivery in 2018» Investments spread across all of our equipment types» Expect strong growth in our revenue earning assets, continuing to outpace the overall market Most of our customers continue to rely heavily on leasing Our deal share for new container transactions remains high Economics of new container investments attractive» Estimate lifetime equity IRRs for 2018 investments will be in mid-teen range» Average initial durations of 7 years» Well-protected lease structures 7

8 CONSOLIDATED STATEMENTS OF ADJUSTED NET INCOME Q3 '18 % change (Dollars in thousands, except earnings per share) Q3 '18 Q2 '18 Q3 '17 Q2 '18 Q3 '17 Total leasing revenues $ 350,078 $ 329,771 $ 302, % 15.9% Trading margin 5,810 3,994 1, % 324.4% Net gain on sale of leasing equipment 7,055 11,105 10,263 (36.5%) (31.3%) Depreciation and amortization 141, , , % 9.9% Interest and debt expenses 81,894 78,535 73, % 10.9% Total ownership costs 223, , , % 10.3% Direct operating expenses 11,489 10,195 13, % (16.9%) Administrative expenses 19,964 20,775 21,233 (3.9%) (6.0%) Provision / (benefit) for doubtful accounts 677 (25) 783 (2,808.0%) (13.5%) Other expense / (income), net 492 (585) 164 (184.1%) 200.0% Income attributable to noncontrolling interest 1,393 1,883 2,390 (26.0%) (41.7%) Adjusted pre-tax income (A) $ 105,697 $ 100,198 $ 72, % 44.9% Estimated taxes 10,857 11,298 12,238 (3.9%) (11.3%) Adjusted net income (A) $ 94,840 $ 88,900 $ 60, % 56.2% Adjusted net income per common share $ 1.17 $ 1.10 $ % 46.3% Weighted average number of common shares outstanding - diluted 80,728 80,655 75, % 6.6% Return on equity 16.9% 16.4% 13.4% (A) Excludes transaction costs, write-off of deferred financing costs, net unrealized loss or gains on interest rate swaps, and gain on sale of building. 8

9 PROFITABILITY DRIVERS Fleet growth Revenue earning assets up 12.1% at the end of Q vs. Q Leasing revenue up $48.0 million, or 15.9% from Q Sustained high utilization Contributing to leasing revenue growth, especially vs. Q Direct operating expenses down $2.3 million or 16.9% from Q Strong disposal prices Combined gains on disposal and trading activity increased $1.2 million, or 10.6% from Q Average dry container sale prices up 13.5% from Q3 2017, but volumes down due to strong lease demand Benefit from purchase accounting and decrease in GAAP tax rate Purchase accounting provided a $5.0 million net benefit in Q vs a $2.2 million net benefit in Q Expect net benefit to grow over the next several years Tax rate down to 10.3% in Q from 16.8% in Q3 2017, on an adjusted basis, including a discrete item providing a 0.7% benefit. Expect rate to trend down below 10% over time 9

10 Q4 '07 Q4 '08 Q4 '09 Q4 '10 Q4 '11 Q4 '12 Q4 '13 Q4 '14 Q4 '15 Q4 '16 Q4 '17 Net Debt as % of REA $ Per Share Q3'18 Annualized ($MM) CASH FLOW AND SHAREHOLDER VALUE CREATION Cash Flow Before CapEx (1)(2)(3) Steady Value Creation (5) $1,500 $1,250 $60 $1,000 $750 $500 $50 $250 $0 $40 Cash Flow Before CapEx (1) See Footnote 1 in the Appendix. (2) See Footnote 2 in the Appendix (3) Reflects purchase accounting adjustments for 2017 and Q annualized only. $30 100% Net Debt as % of REA (Q4 07 Q3 18) (4) $20 90% 80% Financial Crisis Surplus Period $10 70% 60% 50% $- Q1 Q1 Q1 Q1 Q1 '06 '07 '08 '09 '10 Book Value Per Share Cumulative Dividends Per Share Q1 '11 Q1 '12 Q1 '13 Q1 '14 Q1 '15 Q1 '16 Q1 '17 Q1 '18 Adjusted Tangible Book Value Per Share (4) All periods exclude purchase accounting adjustments. Net Debt defined as Total Debt plus Equipment Purchases Payable less Cash and Restricted Cash. (5) Adjusted tangible book value defined as Shareholders Equity, less Goodwill plus Net Deferred Tax Liability plus Net Swap Liability, before purchase accounting adjustments. 10

11 CAPITAL STRUCTURE Conservative Financing Strategy Minimal interest rate risk» 85% of total debt either fixed rate or swapped to fixed» Average remaining duration of fixed rate debt of ~4.2 years (includes swaps), which exceeds average lease duration Low refinancing risk» Focus on long duration debt» Well-staggered debt maturities» Cash flows before capex sufficient to meet near-term debt repayments, even with no roll-over Access to multiple funding sources» Utilize ABS, bank and private placement markets to diversify debt sources» Raised over $1.6 billion year-to-date Intend to focus efforts to position for upgrade to investment grade» S&P recently revised outlook to Positive from Stable» Would provide access to additional deep funding sources, further differentiating ourselves from other container lessors High Percentage of Fixed-rate Debt (1) Staggered Maturity Profile (1,5) Fixed / Hedged Balance (2) Average Life (yrs) (3) Average Rate (4) Fixed Rate $4, % Hedged Floating Rate 1, % Total Fixed / Hedged 6, % Unhedged Floating Rate 1, % Total Debt 7, % % of Debt Fixed / Hedged 85.1% (1) As of 9/30/18, $ in millions. (2) Balances gross of debt discounts at issuance. (3) Weighted by expected swap notional and principal balances at the end of each month. (4) Rate excludes the impact of debt discount amortization, deferred financing cost amortization and purchase accounting adjustments. (5) See Footnote 2 in the Appendix. $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $ Principal Payments 3Q '18 Annualized Cash Flow Before CapEx 11

12 IMO 2020 OVERVIEW In 2016, the International Maritime Organization ( IMO ) passed a new rule mandating a significant reduction in the sulfur emissions from vessels starting January 1, 2020 Vessel operators will have three general options to comply» Purchase more expensive, low sulfur fuel» Install scrubbers to clean emissions from standard diesel fuel oil» Install engines that run on alternative fuels, primarily LNG Concern that IMO 2020 could exacerbate financial challenges facing our customers Several factors likely to mitigate negative impact of IMO 2020 on our credit risks» Permanent and transparent increase in fuel prices should make it easier for shipping lines to pass on the increased costs» Ongoing consolidation of container lines has strengthened our portfolio» Increase in fuel cost will likely accelerate obsolescence of older vessels and improve the vessel supply / demand balance over time The new rules cost could also benefit leasing demand for containers due to further slow steaming and the additional capital requirements facing our customers 12

13 OUTLOOK AND CONCLUSIONS Third quarter operating and financial performance was very strong» Adjusted net income of $94.8 million or $1.17 per share up 6% from Q and 46% from Q3 2017» Annualized return on equity of 16.9%» On track for another successful year of value-added investment and growth Heading into slow season for dry containers, but market conditions remain generally favorable We expect our Q Adjusted net income to remain in same range as strong Q3 results Tariffs creating uncertainty to global economic outlook, but trade growth is expected to remain solidly positive in 2019 We continue to have significant advantages and believe we are very well positioned for longterm success 13

14 Appendix 14

15 CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands) Q3 '18 Q2 '18 Q3 '17 Total leasing revenues $ 350,078 $ 329,771 $ 302,120 Trading margin 5,810 3,994 1,369 Net gain on sale of leasing equipment 7,055 11,105 10,263 Net gain on sale of building - 20,953 - Depreciation and amortization 141, , ,581 Interest and debt expenses 81,894 78,535 73,815 Total ownership costs 223, , ,396 Direct operating expenses 11,489 10,195 13,833 Administrative expenses 19,964 20,775 21,233 Transaction and other (income) costs 2 (2) 32 Provision / (benefit) for doubtful accounts 677 (25) 783 Other expense (income), net 492 (585) 164 Write-offs of deferred financing costs and unrealized gain on swaps, net 1, ,702 Total operating and other costs 34,294 30,750 40,747 Income before income taxes $ 105,418 $ 122,644 $ 70,609 Income tax expense 9,789 15,891 11,063 Net income $ 95,629 $ 106,754 $ 59,546 Less: income attributable to noncontrolling interest 1,393 1,883 2,390 Net income attributable to shareholders $ 94,236 $ 104,871 $ 57,156 Net income per common share - Diluted $ 1.17 $ 1.30 $

16 RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION (Dollars in thousands, except per share amounts) Q1 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 '18 Q3 '18 Net income attributable to shareholders $ 34,611 $ 45,671 $ 57,156 $ 207,160 $ 80,892 $ 104,870 $ 94,236 Add (subtract): W/off of DFC & unrealized (gain) loss on derivative instruments, net (1,252) 706 3,892 1,243 (1,052) 347 1,483 Transaction and other costs (income) 2, ,862 (26) (1) 2 Insurance recovery income (5,567) Foreign income and withholding tax adjustment (393) (881) One-time tax benefit related to U.S statutory rate reduction (139,359) Gain on sale of building (16,316) Adjusted net income $ 35,425 $ 47,020 $ 60,715 $ 68,339 $ 79,814 $ 88,900 $ 94,840 Adjusted net income per share - Diluted $ 0.48 $ 0.63 $ 0.80 $ 0.85 $ 0.99 $ 1.10 $ 1.17 Q1 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 '18 Q3 '18 Adjusted net income $ 35,425 $ 47,020 $ 60,715 $ 68,339 $ 79,814 $ 88,900 $ 94,840 Annualized Adjusted net income (1) 143, , , , , , ,267 Beginning Shareholders' equity 1,663,233 1,672,925 1,683,470 1,900,028 2,076,284 2,133,505 2,202,601 Ending Shareholders' equity 1,672,925 1,683,470 1,900,028 2,076,284 2,133,505 2,202,601 2,257,483 Average Shareholders' equity $ 1,668,079 $ 1,678,198 $ 1,791,749 $ 1,988,156 $ 2,104,895 $ 2,168,053 $ 2,230,042 Return on equity 8.6% 11.2% 13.4% 13.6% 15.4% 16.4% 16.9% (1) Annualized Adjusted net income was calculated based on calendar days per quarter. 16

17 RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION (Dollars in thousands) 2017 Q3 18 Annualized Income before income taxes $260,252 $421,672 Add (subtract): Unrealized gain (loss) on derivative instruments (1,397) 1,288 Insurance recovery income (6,764) - Write-off of debt costs 6,973 5,392 Transaction and other costs 9,272 8 Less: Income attributable to non-controlling interest 8,928 5,572 Adjusted pre-tax income 259, ,788 Interest expense 283, ,576 Depreciation and amortization expense 500, ,348 Adjusted EBITDA 1,043,375 1,315,712 Principal payments on finance leases 60,673 62,264 NBV of container disposals 154, ,408 Major cash in flows 1,258,980 1,504,384 Interest expense 283, ,576 Cash flow before capex $975,733 $1,176,808 17

18 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. 18