SECOND QUARTER 2018 INVESTOR CONFERENCE CALL. August 3, 2018

Transcription

1 SECOND QUARTER 2018 INVESTOR CONFERENCE CALL August 3,

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 second quarter Adjusted net income of $88.9 million, or $1.10 per share, an increase of 11% from the first quarter of 2018» Generated an annualized return on equity of 16.4% in the second quarter» The increase in profitability was driven by fleet growth and continued strong operating performance Triton is achieving another strong year of value-added investment and growth Market conditions remain favorable, though expanded tariffs creating some uncertainty We expect our Adjusted net income will increase sequentially throughout the remainder of the year Triton declared a dividend of $0.52 per share Triton s Board of Directors authorized share repurchases up to $200 million 3

4 OPERATING PERFORMANCE Triton s operating performance was strong in the second quarter, with pick-up activity accelerating into the peak season» Net container pick-up activity near record levels in May and June» Utilization remains very high» Used container sale prices increased due to very low inventory of sale containers Market conditions remain favorable» Customers achieving solid volume growth and most continue to rely heavily on leasing» Supply of containers remains well controlled» New container prices remain in the range of $2,200 for a 20 dry container We are on track to have another successful year of value-added investment and growth» Benefitting from high share for leasing and outperformance by Triton» Projected lifetime equity returns for new lease transactions in mid-teen range, with average initial lease duration of approximately 7 years 4

5 TRITON S KEY OPERATING METRICS STRONG 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 China Dry Van New Production Inventory (TEU) Triton s Asia Inventory (TEU) Growth Rate TEU (MM) Leasing Company (%) MARKET CONDITIONS REMAIN FAVORABLE Global GDP and Container Trade Growth 8% 6% 4% 2% 0% World Container Fleet and Leasing Share 60% 50% 40% 30% 20% 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 June Container Trade Growth E: average of estimates from Alphaliner Monthly Monitor June 2018 and Clarksons Container Intelligence Monthly June GDP Growth: International Monetary Fund, July 2018 World Economic Outlook Update and earlier editions of the same report. 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 U.S. / CHINA TARIFFS Have not experienced a material impact from initial round of new U.S. / China tariffs» Limited to $34 billion in Chinese goods and many of the products targeted not heavily containerized» Container pick-up activity ramped up well during first half of peak season Tariff coverage is expected to expand» U.S. has announced expansion of tariff coverage to $250 billion, and this could increase depending on the response from China» China has indicated retaliatory steps are likely Proposed tariff expansion creating some uncertainty, though our customers and market forecasters are still expecting global container volumes to increase in 2018» While U.S. / China trade is large, less than 15% of vessel capacity deployed on the trade (1)» Shippers not expected to immediately restructure their global supply chains» For U.S. / China container flows that are disrupted from the tariffs, expect a large portion to be relocated rather than eliminated (1) According to Alphaliner July 2018 Monthly Monitor, 17% of container vessel capacity deployed on the Far East to North America trade (China / U.S. trade is a subset of Far East to North America trade) 7

8 INVESTMENT ACTIVITY Have so far ordered approximately $1.4 billion of containers for delivery in 2018» Investments spread across all of our equipment types» Expect growth in our revenue earning assets will be in the 10% range for 2018 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 will be in mid-teen range» Average initial durations of 7 years» Well protected lease structures 8

9 MOST CAPABLE LEASING COMPANY...WITH THE LOWEST UNIT COSTS Global Capabilities Drive High Lifetime Value Leading Position in Consolidating Industry Large, consistently available ready inventory leads to extra growth and better average deal terms Beacon 6% SeaCube 6% CAI 6% Other 9% Triton 27% Extensive global marketing capability drives high lifetime utilization Global operating infrastructure controls depot network quality and cost Aggressive production QC effort helps maximize container useful life Scale Advantages Lead to Lowest Unit Costs 10% 8% Seaco 12% Textainer 16% Textainer Florens 18% Source: Drewry Container Census & Leasing Annual Report 2018/19, based on fleet size in TEU at end-2017; figures exclude containers owned by shipping lines and other. CAI Leading team of container re-sale specialists allows Triton to sell in more locations and for better prices 6% 4% Triton 2% Triton Textainer CAI S&A as a Percent of Leasing Revenue (1) (1) Based on financials for the first quarter Textainer includes short-term and long-term incentive compensation expense. 9

10 CONSOLIDATED STATEMENTS OF ADJUSTED NET INCOME Q2 '18 % change from (Dollars in thousands, except earnings per share) Q2 '18 Q1 '18 Q2 '17 Q1 '18 Q2 '17 Total leasing revenues $ 329,771 $ 315,097 $ 281, % 17.0% Trading margin 3,994 2,991 1, % 200.8% Net gain on sale of leasing equipment 11,105 9,218 9, % 15.2% Depreciation and amortization 133, , , % 7.9% Interest and debt expenses 78,535 74,850 71, % 10.5% Total ownership costs 212, , , % 8.9% Direct operating expenses 10,195 11,048 15,609 (7.7%) (34.7%) Administrative expenses 20,775 19,582 22, % (5.9%) (Benefit) for doubtful accounts (25) (101) (113) (75.2%) (77.9%) Other income, net (585) (659) (974) (11.2%) (39.9%) Income attributable to noncontrolling interest 1,883 1,973 2,343 (4.6%) (19.6%) Adjusted pre-tax income (A) $ 100,198 $ 90,180 $ 58, % 70.3% Estimated taxes 11,298 10,366 11, % (4.3%) Adjusted net income (A) $ 88,900 $ 79,814 $ 47, % 89.1% Adjusted net income per common share $ 1.10 $ 0.99 $ % 74.6% (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. 10

11 PROFITABILITY DRIVERS Fleet growth Leasing revenue up $47.8 million, 17% from Q Sustained high utilization Contributing to leasing revenue growth, especially vs. Q Direct operating expenses down $5.4 million or 35% from Q Strong disposal prices Gains on disposal increased $4.1 million, or 38% from Q Average dry container sale prices up 24% from Q Building sale Recorded a gain of $21.0 million from the sale of a building in San Francisco Benefit from purchase accounting and decrease in GAAP tax rate Purchase accounting provided a $5.1 million net benefit in Q vs a $2.8 million net expense in Q Expect net benefit to grow over the next several years Tax rate down to 11.3% in Q from 20.0% in Q2 2017, on an adjusted basis. Expect rate to trend down below 10% over time 11

12 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 Q2'18 Annualized ($MM) STRONG, STABLE CASH FLOW DRIVES STEADY 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 Q2 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. 12

13 WELL STRUCTURED BALANCE SHEET Conservative Financing Strategy Minimal interest rate risk» 82% 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 $1.2 billion year-to-date High Percentage of Fixed-rate Debt (1) Staggered Maturity Profile (1,5,6) 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 82.2% (1) As of 6/30/18, $ 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) Pro forma for term loan extension that closed after 6/30/18. (6) See Footnote 2 in the Appendix. $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $ Principal Payments 2Q '18 Annualized Cash Flow Before CapEx 13

14 OUTLOOK AND CONCLUSIONS Our operating and financial performance remain very strong» Adjusted net income of $88.9 million or $1.10 per share Q2, up 11% from Q1 2018» Annualized return on equity of 16.4%» On track for another successful year of value-added investment and growth Market conditions remain favorable, though expanded tariffs creating some uncertainty We expect our Adjusted net income to increase sequentially throughout the balance of the year We have significant advantages and believe we are very well positioned for long-term success 14

15 Appendix 15

16 CONSOLIDATED STATEMENTS OF INCOME 16

17 RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION 17

18 RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION (Dollars in thousands) 2017 Q2 18 Annualized Income before income taxes $260,252 $490,572 Add (subtract): Unrealized gain on derivative instruments (1,397) (444) Insurance recovery income (6,764) - Write-off of debt costs 6,973 2,012 Transaction and other costs (income) 9,272 (4) Net gain on sale of building - (83,812) Less: Income attributable to non-controlling interest 8,928 7,532 Adjusted pre-tax income 259, ,792 Interest expense 283, ,140 Depreciation and amortization expense 500, ,576 Adjusted EBITDA 1,043,375 1,250,508 Principal payments on finance leases 60,673 59,308 NBV of container disposals 154, ,812 Major cash in flows 1,258,980 1,443,628 (1) Interest expense 283, ,140 Cash flow before capex $975,733 $1,129,488 (1) Net gain on sale of building in Q was $21.0 million. 18

19 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. 19