Triton International Limited Reports Fourth Quarter and Full Year 2016 Results

HAMILTON, Bermuda--(BUSINESS WIRE)--Mar. 14, 2017--Triton International Limited (NYSE:TRTN), ("Triton") today reported results for the fourth quarter and full year ended December 31, 2016. On July 12, 2016Triton Container International Limited ("TCIL") and TAL International Group, Inc. ("TAL") completed their previously announced strategic combination and became wholly-owned subsidiaries of Triton.

Highlights:

  • Triton reported Net income attributable to shareholders of $22.8 million and Income before income taxes of $31.1 million for the fourth quarter of 2016.
  • Triton reported Adjusted pre-tax income of $19.0 million in the fourth quarter of 2016.
  • Utilization averaged 93.6% for the fourth quarter of 2016 and averaged 93.3% for the full year.
  • As previously announced, Triton declared a quarterly dividend of $0.45 per share payable on March 30, 2017 to shareholders of record as of March 20, 2017.

Financial Results

The following table depicts Triton’s selected key financial information for the fourth quarter and full year ended December 31, 2016 and 2015 (dollars in millions, except per share data). Financial information for periods prior to July 12, 2016 is for TCIL (the accounting acquirer in the strategic combination of TCIL and TAL) only.

           
      Three Months Ended
December 31,
  Twelve Months Ended
December 31,
      2016   2015   % Change   2016   2015   % Change
Leasing revenues     $   259.5   $   173.0   50.0 %   $   828.7     $   707.8   17.1 %
Income (loss) before income taxes     $   31.1   $   18.9   64.6 %   $   (5.8 )   $   131.7   (104.4 %)
Net income (loss) attributable to shareholders     $   22.8   $   12.8   78.1 %   $   (13.5 )   $   111.1   (112.2 %)
Net income (loss) per share - diluted     $   0.31   $   0.32   (3.1 %)   $   (0.24 )   $   2.71   (108.9 %)
Adjusted pre-tax income(1)     $   19.0   $   21.2   (10.4 %)   $   49.1     $   140.7   (65.1 %)
Adjusted net income(1)     $   15.3   $   19.7   (22.3 %)   $   48.9     $   135.8   (64.0 %)
                           

(1) Adjusted pre-tax income and Adjusted net income are non-GAAP financial measures that we believe are useful in evaluating our operating performance. Triton's definition and calculation of Adjusted pre-tax income and Adjusted net income, including reconciliation of such non-GAAP financial measures to the most directly comparable GAAP financial measures, are outlined in the attached schedules.

Operating Performance

“Triton finished an eventful year in 2016 with strong momentum,” commented
Brian M. Sondey, Chairman and Chief Executive Officer of Triton. “After being very challenging since early 2015, market conditions started to improve in the summer of 2016 and the improvements accelerated in the fourth quarter. Triton’s operating and financial performance improved throughout the third and fourth quarters as well.”

“The improvement in market conditions has been strongest for our dry container product line. In 2016, modest trade growth combined with reduced new container production volumes to significantly reduce excess container inventories. Leasing demand was further supported by an increased preference for leasing and stronger than expected containerized trade volumes after the end of the traditional summer peak season for dry containers. Triton’s net container pick-ups in the third and fourth quarters of 2016 were close to record levels, and new and used container inventories were historically low at the end of the year. Triton’s utilization increased 2.2% during the fourth quarter to reach 94.8% as of December 31, 2016. Triton’s utilization currently stands at 95.5%.”

“New dry container prices increased rapidly in the fourth quarter of 2016 due to a strong rebound in steel prices in China and increased orders for new containers. Market lease rates also increased rapidly due to the increase in new container prices and the improved container supply / demand balance. Used dry container sale prices stabilized in the third quarter and increased gradually in the fourth quarter, though the rate of improvement has so far lagged the increase in new container prices and market lease rates. We expect used dry container sale prices will continue to increase in 2017 if current market conditions are sustained.”

“Triton generated $19.0 million of Adjusted pre-tax income in the fourth quarter of 2016. This level of profitability represents a solid increase from our normalized results in the third quarter, though the increase in the fourth quarter did not reflect the full impact of the improvement in market conditions and our operating trends. Purchase accounting reduced our reported profitability by $9.7 million in the fourth quarter. In addition, we continued to be impacted by the loss of revenue on the majority of containers previously on-hire to Hanjin Shipping Co. ("Hanjin"), and we also incurred an increase in repair expenses in the fourth quarter as we accelerated repairs on idle containers in response to improved leasing demand. Fortunately, we expect these factors to fade over the next several quarters.”

“The bankruptcy of Hanjin continues to have a significant impact on our business, but we are making good progress recovering our containers and expect the recovery process to be mostly complete during the first half of 2017. As of March 14, 2017, 78% of the containers previously on-hire to Hanjin have been recovered, and another 11% of the containers have been negotiated for release and are in the process of recovery.”

“We continue to make excellent progress on our post-merger integration. We expect to complete systems integration during the second quarter of 2017 and we remain on track to achieve our target of $40 million of annual organizational cost savings. In addition, our customers, lenders, suppliers and other stakeholders are taking note of the increased competitive distance between Triton and our peers, and are seeing benefits for themselves in working closely with the clear market leader.”

Outlook

Mr. Sondey continued, “Market conditions remain generally favorable at the start of 2017. Leasing company inventories of used dry containers are limited, and inventories of new containers at the container factories are near recent historical lows. New container prices and market leasing rates have started 2017 on a positive trajectory, and the price for a new twenty foot dry container is currently in the range of $2,200. Market lease rates for new dry container long-term leases are currently higher than the average lease rates in Triton’s lease portfolio, which should mitigate the impacts of lease re-pricing if current market conditions are sustained.”

“We expect that new container production volumes will remain limited in the first half of 2017 and that the supply of containers will remain constrained despite the improved market fundamentals. We expect that container manufacturers in China will be required to convert all of their dry container production facilities to a new paint system which will take many container factories off-line for a portion of the second quarter. In addition, a number of leasing companies and shipping lines continue to face financial constraints that will likely limit their investments in new containers.”

“Our outlook for trade growth and leasing demand in 2017 is less clear. Our customers are generally reporting stronger than expected cargo volumes and improved freight rates for the first quarter, but ongoing global economic instability and increased threats of protectionism create meaningful risks to global economic growth, trade growth and leasing demand.”

“We expect our Adjusted pre-tax income to increase from the fourth quarter of 2016 to the first quarter of 2017. The first quarter typically represents our weakest quarter of the year since demand for dry containers is usually weakest in the post-holiday period and since the quarter has two fewer days than the fourth quarter. However, we expect ongoing improvements in our core operating trends to outweigh the first quarter seasonal weakness. If market conditions remain strong, we expect our financial results will improve sequentially through 2017.”

Dividend

As previously announced, Triton's Board of Directors has approved and declared a $0.45 per share quarterly cash dividend on its issued and outstanding common shares, payable on March 30, 2017 to shareholders of record at the close of business on March 20, 2017.

Investors’ Webcast

Triton will hold a Webcast at 9 a.m. (New York time) on Wednesday, March 15, 2017 to discuss its fourth quarter and full year results. An archive of the Webcast will be available one hour after the live call through Friday, April 28, 2017. To access the live Webcast or archive, please visit Triton’s website at http://www.trtn.com.

About Triton International Limited

Triton International Limited is the parent of Triton Container International Limited and TAL International Group, Inc., each of which merged under Triton on July 12, 2016 to create the world’s largest lessor of intermodal freight containers and chassis. Triton operates a container fleet over five million twenty-foot equivalent units ("TEU"), and our global operations include acquisition, leasing, re-leasing and subsequent sale of multiple types of intermodal containers and chassis.

The following table sets forth the combined equipment fleet utilization(a) as of and for the periods indicated:

       
      Quarter Ended
      December 31,   September 30,   June 30,   March 31,
Average Utilization     93.6%   92.4%   93.3%   94.0%
Ending Utilization     94.8%   92.6%   93.7%   93.5%
                   

(a) Utilization is computed by dividing total units on lease (in cost equivalent units, or "CEUs") by the total units in fleet (in CEUs), excluding new units not yet leased and off-hire units designated for sale. For the utilization calculation, units on lease to Hanjin were treated as off-lease effective August 1, 2016.

The following table provides the composition of our equipment fleet as of December 31, 2016 (in units, TEUs and cost equivalent units, or “CEUs”):

       
      December 31, 2016
      Equipment Fleet in Units   Equipment Fleet in TEUs
Dry     2,747,497   4,443,935
Refrigerated     217,564   417,634
Special     84,077   147,217
Tank     11,961   11,961
Chassis     21,172   38,321
Equipment leasing fleet     3,082,271   5,059,068
Equipment trading fleet     15,927   26,276
Total     3,098,198   5,085,344
           
      December 31, 2016    
      Equipment Fleet in CEUs    
Operating leases     6,126,320    
Finance leases     368,468    
Equipment trading fleet     72,646    
Total     6,567,434    
           

Important Cautionary Information Regarding Forward-Looking Statements

Certain statements in this release, 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's 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: failure to realize the anticipated benefits of the combination of TCIL and TAL, including as a result of a delay or difficulty in integrating the businesses of TCIL and TAL; uncertainty as to the long-term value of Triton's common shares; the expected amount and timing of cost savings and operating synergies resulting from the transaction; 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; their customers' decisions to buy rather than lease containers; their dependence on a limited number of customers for a substantial portion of their 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 their businesses; decreases in the demand for international trade; disruption to their operations resulting from the political and economic policies of foreign countries, particularly China; disruption to their operations from failures of or attacks on their information technology systems; their compliance with laws and regulations related to security, anti-terrorism, environmental protection and corruption; their ability to obtain sufficient capital to support their growth; restrictions on their businesses imposed by the terms of their debt agreements; and other risks and uncertainties, including those risk factors set forth in the section entitled "Risk Factors" beginning on page 34 of the proxy statement/prospectus included in Triton’s Registration Statement on Form S-4, as amended.

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.

           

TRITON INTERNATIONAL LIMITED
Consolidated Balance Sheets
(Dollars in thousands, except share data)

           
     

December 31,
2016

 

December 31,
2015

ASSETS:          
Leasing equipment, net of accumulated depreciation of $1,787,505 and $1,566,963     $ 7,370,519     $ 4,362,043  
Net investment in finance leases, net of allowances of $527 and $526     346,810     66,656  
Equipment held for sale     99,863      
Revenue earning assets     7,817,192     4,428,699  
Cash and cash equivalents     113,198     56,689  
Restricted cash     50,294     22,575  
Accounts receivable, net of allowances of $28,082 and $8,297     173,585     110,970  
Goodwill     236,665      
Lease intangibles, net of accumulated amortization of $56,159     246,598      
Insurance receivable     17,170      
Other assets     53,126     37,911  
Fair value of derivative instruments     5,743     2,153  
Total assets     $ 8,713,571     $ 4,658,997  
LIABILITIES AND SHAREHOLDERS' EQUITY:          
Equipment purchases payable     $ 83,567     $ 12,128  
Fair value of derivative instruments     9,404     257  
Accounts payable and other accrued expenses     143,098     81,306  
Net deferred income tax liability     317,316     20,570  
Debt, net of unamortized deferred financing costs of $19,999 and $19,024     6,353,449     3,166,903  
Total liabilities     6,906,834     3,281,164  
Shareholders' equity:          
Class A common shares, $0.01 par value; 235,200,000 authorized, none and 35,628,585 issued and outstanding respectively         445  
Class B common shares, $0.01 par value; 4,800,000 authorized; none and 4,800,000 issued and outstanding respectively         60  
Common shares, $0.01 par value, 294,000,000 shares authorized, 74,376,025 and no shares issued and outstanding respectively     744      
Undesignated shares $0.01 par value, 6,000,000 shares authorized, no shares issued and outstanding          
Additional paid-in capital     690,418     176,088  
Accumulated earnings     945,313     1,044,402  
Accumulated other comprehensive income (loss)     26,758     (3,666 )
Total shareholders' equity     1,663,233     1,217,329  
Non-controlling interests     143,504     160,504  
Total equity     $ 1,806,737     $ 1,377,833  
Total liabilities and shareholders' equity     $ 8,713,571     $ 4,658,997  
                   
           

TRITON INTERNATIONAL LIMITED
Consolidated Statements of Operations
(Dollars and shares in thousands, except earnings per share)

           
      Three Months Ended
December 31,
  Twelve Months Ended
December 31,
      2016   2015   2016   2015
Leasing revenues:                  
Operating leases     $   253,095     $   170,988     $   813,357     $   699,810  
Finance leases     6,452     2,012     15,337     8,029  
Total leasing revenues     259,547     173,000     828,694     707,839  
                   
Equipment trading revenues     6,597         16,418      
Equipment trading expenses     (6,211 )       (15,800 )    
Trading margin     386         618      
                   
Net (loss) gain on sale of leasing equipment     (4,261 )   (1,058 )   (20,347 )   2,013  
                   
Operating expenses:                  
Depreciation and amortization     120,006     83,174     392,592     300,470  
Direct operating expenses     29,959     15,432     84,256     54,440  
Administrative expenses     20,481     11,539     65,618     53,435  
Transaction and other costsA     399     9,800     66,916     22,185  
Provision (reversal) for doubtful accounts     1,103     (35 )   23,304     (2,156 )
Total operating expenses     171,948     119,910     632,686     428,374  
Operating income     83,724     52,032     176,279     281,478  
Other expenses:                  
Interest and debt expense     61,389     34,752     184,014     140,644  
Realized loss on derivative instruments, net     1,171     1,097     3,438     5,496  
Unrealized (gain) loss on derivative instruments, net     (9,648 )   (3,593 )   (4,405 )   2,240  
Write-off of deferred financing costs         1,170     141     1,170  
Other (income) expense     (301 )   (258 )   (1,076 )   211  
Total other expenses     52,611     33,168     182,112     149,761  
Income (loss) before income taxes     31,113     18,864     (5,833 )   131,717  
Income tax expense (benefit)     5,489     992     (48 )   4,048  
Net income (loss)     $   25,624     $   17,872     $   (5,785 )   $   127,669  
Less: income attributable to non-controlling interest     2,846     5,052     7,732     16,580  
Net income (loss) attributable to shareholders     $   22,778     $   12,820     $   (13,517 )   $   111,089  
Net income (loss) per common share—Basic     $   0.31     $   0.32     $   (0.24 )   $   2.75  
Net income (loss) per common share—Diluted     $   0.31     $   0.32     $   (0.24 )   $   2.71  
Cash dividends paid per common share     $   0.45     $       $   1.35     $    
Weighted average number of common shares and non-voting common shares outstanding—Basic     73,735     40,429     56,032     40,429  
Dilutive stock options and restricted stock     112             503  
Weighted average number of common shares and non-voting common shares outstanding—Diluted     73,847     40,429     56,032     40,932  
                           
               

TRITON INTERNATIONAL LIMITED
Consolidated Statements of Cash Flows
(Dollars in thousands)

               
     

Year Ended
December
31, 2016

 

Year Ended
December
31, 2015

 

Year Ended
December
31, 2014

Cash flows from operating activities:              
Net (loss) income     $ (5,785 )   $ 127,669     $ 171,304  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:              
Depreciation and amortization     392,592     300,470     258,489  
Amortization and write-off of deferred financing costs and other debt related amortization     6,075     6,844     13,938  
Amortization of lease intangible     55,484          
Net loss (gain) on sale of leasing equipment     20,347     (2,013 )   (31,616 )
Net (gain) loss on interest rate swaps     (4,405 )   2,240     3,798  
Deferred income taxes     (809 )   3,353     4,134  
Share compensation charge     5,399     12,048     18,686  
Changes in operating assets and liabilities, net of acquired assets and liabilities:              
Net equipment sold for resale activity     4,031          
Accounts receivable     10,111     5,494     131  
Accounts payable and other accrued expenses     10,694     (2,768 )   (2,885 )
Other assets     (9,509 )   (2,814 )   (2,548 )
Cash payments on termination of derivative instruments     (37 )   (1,219 )   (1,057 )
Net cash provided by operating activities     484,188     449,304     432,374  
Cash flows from investing activities:              
Purchases of leasing equipment and investments in finance leases     (629,332 )   (398,799 )   (809,446 )
Proceeds from sale of equipment, net of selling costs     145,572     171,719     195,282  
Cash collections on finance lease receivables, net of income earned     38,650     14,178     14,660  
Cash and cash equivalents acquired     50,349          
Other     (685 )   (2,819 )   (3,182 )
Net cash (used in) investing activities     (395,446 )   (215,721 )   (602,686 )
Cash flows from financing activities:              
Redemption of common shares     (7,410 )        
Financing fees paid under debt facilities     (6,554 )   (2,972 )   (4,845 )
Borrowings under debt facilities and proceeds under capital lease obligations     661,971     685,500     1,622,075  
Payments under debt facilities and capital lease obligations     (602,152 )   (886,979 )   (1,209,377 )
Decrease in restricted cash     31,396     8,877     17,268  
Purchase of non-controlling interests             (70 )
Distributions to non-controlling interest     (24,732 )   (46,927 )   (38,225 )
Common stock dividends paid     (84,752 )       (215,000 )
Net cash (used in) provided by financing activities     (32,233 )   (242,501 )   171,826  
Net increase (decrease) in unrestricted cash and cash equivalents     $ 56,509     $ (8,918 )   $ 1,514  
Cash and cash equivalents, beginning of period     56,689     65,607     64,093  
Cash and cash equivalents, end of period     $ 113,198     $ 56,689     $ 65,607  
Supplemental disclosures:              
Interest paid     $ 181,559     $ 131,749     $ 132,214  
Income taxes paid     $ 309     $ 1,477     $ 1,552  
Supplemental non-cash investing activities:              
Equipment purchases payable     $ 83,567     $ 12,128     $ 109,949  
Shares issued to acquire TAL     $ 510,186     $     $  
                           

A Transaction costs associated with the merger of TCIL and TAL and other costs for the fourth quarter and full year ended December 31, 2016 and 2015 were as follows:

           
      Three Months Ended
December 31,
  Twelve Months Ended
December 31,
      2016   2015   2016   2015
Employee compensation costs     $ 209   $ 3,164   $ 46,838   $ 15,426
Professional fees     78   2,729   14,295   2,840
Legal expenses     81   3,907   3,371   3,919
Other     31     2,412  
Total     $ 399   $ 9,800   $ 66,916   $ 22,185
                           

Employee compensation costs include costs to maintain and retain key employees, severance expenses, and certain stock compensation expense, including retention and stock compensation expense pursuant to plans established as part of TCIL's 2011 re-capitalization. Professional fees and legal expenses include costs paid for services directly related to the closing of the merger and include legal fees, accounting fees and transaction and advisory fees.

Non-GAAP Financial Measures

We use the terms "Adjusted pre-tax income "and "Adjusted net income" throughout this press release.

Adjusted pre-tax income is defined as income before income taxes as further adjusted for certain items which are described in more detail below, which management believes are not representative of our operating performance. Adjusted pre-tax income excludes gains and losses on interest rate swaps, the write-off of deferred financing costs, transaction and other costs, and non-controlling interest. Adjusted net income is defined as net income further adjusted for the items discussed above, net of income tax.

Adjusted pre-tax income and Adjusted net income are not presentations made in accordance with U.S. GAAP. Adjusted pre-tax income and Adjusted net income should not be considered as alternatives to, or more meaningful than, amounts determined in accordance with U.S. GAAP, including net income.

We believe that Adjusted pre-tax income and Adjusted net income are useful to an investor in evaluating our operating performance because these measures:

  • are widely used by securities analysts and investors to measure a company’s operating performance;
  • help investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the impact of our capital structure, our asset base and certain non-routine events which we do not expect to occur in the future; and
  • are used by our management for various purposes, including as measures of operating performance and liquidity, to assist in comparing performance from period to period on a consistent basis, in presentations to our board of directors concerning our financial performance and as a basis for strategic planning and forecasting.

We have provided reconciliations of Net income (loss) before income taxes and Net income (loss) attributable to shareholders, the most directly comparable U.S. GAAP measures, to Adjusted pre-tax income and Adjusted net income in the tables below for the three and twelve months ended December 31, 2016 and 2015.

 

TRITON INTERNATIONAL LIMITED
Non-GAAP Reconciliations of Adjusted Pre-tax Income and Adjusted Net Income
(Dollars in Thousands)

           
     

Three Months Ended
December 31,

 

Twelve Months Ended
December 31,

      2016   2015   2016   2015
Income (loss) before income taxes     $ 31,113     $ 18,864     $ (5,833 )   $ 131,717
Add (subtract):                  
Unrealized (gain) loss on derivative instruments, net     (9,648 )   (3,593 )   (4,405 )   2,240
Write-off of deferred financing costs         1,170     141     1,170
Transaction and other costs     399     9,800     66,916     22,185
Less:                  
Income attributable to non-controlling interest     2,846     5,052     7,732     16,580
Adjusted pre-tax income     $ 19,018     $ 21,189     $ 49,087     $ 140,732
                   
     

Three Months Ended
December 31,

 

Twelve Months Ended
December 31,

      2016   2015   2016   2015
Net income (loss) attributable to shareholders     $ 22,778     $ 12,820     $ (13,517 )   $ 111,089
Add (subtract):                  
Unrealized (gain) loss on derivative instruments, net     (7,775 )   (3,335 )   (4,389 )   2,161
Write-off of deferred financing costs         1,086     141     1,129
Transaction and other costs     322     9,096     66,679     21,405
Adjusted net income     $ 15,325     $ 19,667     $ 48,914     $ 135,784
                                 

 

Source: Triton International Limited

Triton International Limited
Andrew Greenberg, 914-697-2900
Senior Vice President,
Finance & Investor Relations