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Amortization expense related to intangible assets was $0.7 million and $2.0 million for the three and nine months ended September 30, 2024, respectively and $1.2 million and $3.8 million for the three and nine months ended September 30, 2023, 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For The Quarterly Period Ended September 30, 2024
Or
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from to
Commission file number - 001-37827
Triton International Limited
(Exact name of registrant as specified in the charter)
| | | | | | | | |
Bermuda | | 98-1276572 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
Victoria Place, 5th Floor, 31 Victoria Street, Hamilton HM 10, Bermuda
(Address of principal executive office)
(441) 294-8033
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | |
8.50% Series A Cumulative Redeemable Perpetual Preference Shares | TRTN PRA | New York Stock Exchange |
8.00% Series B Cumulative Redeemable Perpetual Preference Shares | TRTN PRB | New York Stock Exchange |
7.375% Series C Cumulative Redeemable Perpetual Preference Shares | TRTN PRC | New York Stock Exchange |
6.875% Series D Cumulative Redeemable Perpetual Preference Shares | TRTN PRD | New York Stock Exchange |
5.75% Series E Cumulative Redeemable Perpetual Preference Shares | TRTN PRE | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | | | | |
| Large Accelerated Filer | ☒ | | | Accelerated Filer | ☐ | |
| Non-accelerated filer | ☐ | | | Smaller reporting company | ☐ | |
| | | | | Emerging growth company | ☐ | |
| | | | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 31, 2024, there were 101,158,891 common shares at $0.01 par value per share of the Registrant outstanding, all of which were held by an affiliate of Brookfield Infrastructure.
Triton International Limited
Quarterly Report on Form 10-Q
Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q of Triton International Limited contains 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 (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that involve substantial risks and uncertainties. In addition, we, or our executive officers on our behalf, may from time to time make forward-looking statements in reports and other documents we file with the Securities and Exchange Commission (the "SEC"), or in connection with oral statements made to the press, potential investors or others. All statements, 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. 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 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:
•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;
•our customers' decisions to buy rather than lease containers;
•increases in the cost of repairing and storing our off-hire containers;
•our dependence on a limited number of customers and suppliers;
•customer defaults;
•decreases in the selling prices of used containers;
•extensive competition in the container leasing industry;
•risks stemming from the international nature of our businesses, including global and regional economic conditions and geopolitical risks, including international conflicts;
•decreases in demand for international trade;
•risks resulting from the political and economic policies of the United States and other countries, particularly China, including but not limited to, the impact of trade wars, duties and tariffs;
•disruption to our operations from failures of, or attacks on, our information technology systems;
•disruption to our operations as a result of natural disasters or public health crises;
•compliance with laws and regulations globally;
•risks related to the acquisition of Triton by Brookfield Infrastructure, including the potentially divergent interests of our sole common shareholder and the holders of our outstanding indebtedness and preference shares, and our reliance on certain corporate governance exemptions;
•the availability and cost of capital;
•restrictions imposed by the terms of our debt agreements;
•changes in tax laws in Bermuda, the United States and other countries; and
•other risks and uncertainties, including those listed under Item 1A. "Risk Factors" in our Annual Report on Form 10-K filed with the SEC on February 29, 2024 (the "2023 Annual Report on Form 10-K"), in this Quarterly Report on Form 10-Q and in the other documents we file with the SEC from time to time.
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 in this Form 10-Q 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 businesses 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.
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
TRITON INTERNATIONAL LIMITED
Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
ASSETS: | | | |
Leasing equipment, net of accumulated depreciation of $4,714,232 and $4,482,185 | $ | 8,747,250 | | | $ | 8,768,917 | |
Net investment in finance leases | 1,608,166 | | | 1,507,292 | |
Equipment held for sale | 112,732 | | | 185,502 | |
Revenue earning assets | 10,468,148 | | | 10,461,711 | |
Cash and cash equivalents | 85,818 | | | 57,776 | |
Restricted cash | 75,399 | | | 91,450 | |
Accounts receivable, net of allowances of $969 and $738 | 234,459 | | | 243,443 | |
Goodwill | 236,665 | | | 236,665 | |
| | | |
Other assets | 34,714 | | | 46,217 | |
Fair value of derivative instruments | 71,314 | | | 95,606 | |
Total assets | $ | 11,206,517 | | | $ | 11,232,868 | |
LIABILITIES AND SHAREHOLDERS' EQUITY: | | | |
Equipment purchases payable | $ | 173,606 | | | $ | 31,597 | |
Fair value of derivative instruments | 5,460 | | | 1,827 | |
Deferred revenue | 203,833 | | | 259,023 | |
Accounts payable and other accrued expenses | 137,665 | | | 116,888 | |
Net deferred income tax liability | 415,572 | | | 415,901 | |
Debt, net of unamortized costs of $51,746 and $43,924 | 7,450,287 | | | 7,470,634 | |
Total liabilities | 8,386,423 | | | 8,295,870 | |
Shareholders' equity: | | | |
Preferred shares, $0.01 par value, at liquidation preference | 730,000 | | | 730,000 | |
Common shares, $0.01 par value, 270,000,000 shares authorized, 101,158,891 shares issued and outstanding | 1,012 | | | 1,012 | |
Undesignated shares, $0.01 par value, 800,000 shares authorized, no shares issued and outstanding | — | | | — | |
| | | |
Additional paid-in capital (deficit) | (305,654) | | | (308,114) | |
Accumulated earnings | 2,338,095 | | | 2,428,531 | |
Accumulated other comprehensive income (loss) | 56,641 | | | 85,569 | |
| | | |
| | | |
Total shareholders' equity | 2,820,094 | | | 2,936,998 | |
Total liabilities and shareholders' equity | $ | 11,206,517 | | | $ | 11,232,868 | |
The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.
4
TRITON INTERNATIONAL LIMITED
Consolidated Statements of Operations
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Leasing revenues: | | | | | | | |
Operating leases | $ | 363,787 | | | $ | 358,997 | | | $ | 1,060,968 | | | $ | 1,089,349 | |
Finance leases | 27,532 | | | 25,904 | | | 80,625 | | | 79,814 | |
| | | | | | | |
Total leasing revenues | 391,319 | | | 384,901 | | | 1,141,593 | | | 1,169,163 | |
| | | | | | | |
Equipment trading revenues | 11,493 | | | 34,996 | | | 35,610 | | | 80,524 | |
Equipment trading expenses | (10,440) | | | (30,488) | | | (32,258) | | | (73,033) | |
Trading margin | 1,053 | | | 4,508 | | | 3,352 | | | 7,491 | |
| | | | | | | |
Net gain (loss) on sale of leasing equipment | 17,435 | | | 12,318 | | | (6,061) | | | 49,401 | |
| | | | | | | |
| | | | | | | |
Operating expenses: | | | | | | | |
Depreciation and amortization | 134,952 | | | 141,438 | | | 406,569 | | | 436,753 | |
Direct operating expenses | 13,527 | | | 27,143 | | | 53,306 | | | 75,221 | |
Administrative expenses | 22,862 | | | 23,623 | | | 68,683 | | | 69,884 | |
Transaction and other costs | 5,095 | | | 68,741 | | | 26,746 | | | 71,320 | |
Provision (reversal) for doubtful accounts | (53) | | | (211) | | | (1,543) | | | (2,768) | |
| | | | | | | |
Total operating expenses | 176,383 | | | 260,734 | | | 553,761 | | | 650,410 | |
Operating income (loss) | 233,424 | | | 140,993 | | | 585,123 | | | 575,645 | |
Other (income) expenses: | | | | | | | |
Interest and debt expense | 67,404 | | | 60,073 | | | 190,242 | | | 176,211 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other (income) expense, net | (56) | | | (173) | | | (134) | | | (490) | |
Total other (income) expenses | 67,348 | | | 59,900 | | | 190,108 | | | 175,721 | |
Income (loss) before income taxes | 166,076 | | | 81,093 | | | 395,015 | | | 399,924 | |
Income tax expense (benefit) | 15,423 | | | 11,392 | | | 41,383 | | | 38,648 | |
Net income (loss) | $ | 150,653 | | | $ | 69,701 | | | $ | 353,632 | | | $ | 361,276 | |
| | | | | | | |
Less: dividends on preferred shares | 13,028 | | | 13,028 | | | 39,084 | | | 39,084 | |
Net income (loss) attributable to common shareholder | $ | 137,625 | | | $ | 56,673 | | | $ | 314,548 | | | $ | 322,192 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.
5
TRITON INTERNATIONAL LIMITED
Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | 2023 |
Net income (loss) | $ | 150,653 | | | $ | 69,701 | | | $ | 353,632 | | $ | 361,276 | |
Other comprehensive income (loss), net of tax: | | | | | | |
Change in derivative instruments designated as cash flow hedges | (40,604) | | | 31,564 | | | 9,901 | | 54,692 | |
Reclassification of (gain) loss on derivative instruments designated as cash flow hedges | (12,653) | | | (11,760) | | | (38,976) | | (30,676) | |
| | | | | | |
Foreign currency translation adjustment | 241 | | | (185) | | | 147 | | (135) | |
Other comprehensive income (loss), net of tax | (53,016) | | | 19,619 | | | (28,928) | | 23,881 | |
Comprehensive income | 97,637 | | | 89,320 | | | 324,704 | | 385,157 | |
Less: | | | | | | |
| | | | | | |
Dividends on preferred shares | 13,028 | | | 13,028 | | | 39,084 | | 39,084 | |
Comprehensive income attributable to common shareholder | $ | 84,609 | | | $ | 76,292 | | | $ | 285,620 | | $ | 346,073 | |
| | | | | | |
Tax (benefit) provision on change in derivative instruments designated as cash flow hedges | $ | (716) | | | $ | 753 | | | $ | 490 | | $ | 1,954 | |
Tax (benefit) provision on reclassification of (gain) loss on derivative instruments designated as cash flow hedges | $ | (1,195) | | | $ | (1,270) | | | $ | (3,850) | | $ | (3,507) | |
| | | | | | |
The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.
6
TRITON INTERNATIONAL LIMITED
Consolidated Statements of Shareholders' Equity
(In thousands, except share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Shares | | Common Shares | | Treasury Shares | | Add'l Paid in Capital (Deficit) | | Accumulated Earnings | | Accumulated Other Comprehensive Income (Loss) | | | | Total Equity |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | | | | |
Balance as of December 31, 2023 | 29,200,000 | | | $ | 730,000 | | | 101,158,891 | | | $ | 1,012 | | | — | | | $ | — | | | $ | (308,114) | | | $ | 2,428,531 | | | $ | 85,569 | | | | | $ | 2,936,998 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 125,543 | | | — | | | | | 125,543 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 23,518 | | | | | 23,518 | |
| | | | | | | | | | | | | | | | | | | | | |
Contributed capital from Parent | — | | | — | | | — | | | — | | | — | | | — | | | 820 | | | — | | | — | | | | | 820 | |
Distributions to Parent | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (200,913) | | | — | | | | | (200,913) | |
| | | | | | | | | | | | | | | | | | | | | |
Preferred shares dividend declared | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (13,028) | | | — | | | | | (13,028) | |
Balance as of March 31, 2024 | 29,200,000 | | | $ | 730,000 | | | 101,158,891 | | | $ | 1,012 | | | — | | | $ | — | | | $ | (307,294) | | | $ | 2,340,133 | | | $ | 109,087 | | | | | $ | 2,872,938 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 77,436 | | | — | | | | | 77,436 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 570 | | | | | 570 | |
Contributed capital from Parent | — | | | — | | | — | | | — | | | — | | | — | | | 820 | | | — | | | — | | | | | 820 | |
Distributions to Parent | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,992) | | | — | | | | | (3,992) | |
| | | | | | | | | | | | | | | | | | | | | |
Preferred shares dividend declared | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (13,028) | | | — | | | | | (13,028) | |
Balance as of June 30, 2024 | 29,200,000 | | | $ | 730,000 | | | 101,158,891 | | | $ | 1,012 | | | — | | | $ | — | | | $ | (306,474) | | | $ | 2,400,549 | | | $ | 109,657 | | | | | $ | 2,934,744 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 150,653 | | | — | | | | | 150,653 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (53,016) | | | | | (53,016) | |
Contributed capital from Parent | — | | | — | | | — | | | — | | | — | | | — | | | 820 | | | — | | | — | | | | | 820 | |
Distributions to Parent | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (200,079) | | | — | | | | | (200,079) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Preferred shares dividend declared | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (13,028) | | | — | | | | | (13,028) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2024 | 29,200,000 | | | $ | 730,000 | | | 101,158,891 | | | $ | 1,012 | | | — | | | $ | — | | | $ | (305,654) | | | $ | 2,338,095 | | | $ | 56,641 | | | | | $ | 2,820,094 | |
The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.
7
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
` | Preferred Shares | | Common Shares | | Treasury Shares | | Add'l Paid in Capital | | Accumulated Earnings | | Accumulated Other Comprehensive Income (Loss) | | | | Total Equity |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | | | | |
Balance as of December 31, 2022 | 29,200,000 | | | $ | 730,000 | | | 81,383,024 | | | $ | 814 | | | 24,494,785 | | | $ | (1,077,559) | | | $ | 909,911 | | | $ | 2,531,928 | | | $ | 109,269 | | | | | $ | 3,204,363 | |
| | | | | | | | | | | | | | | | | | | | | |
Share-based compensation expense | — | | | — | | | 135,716 | | | 1 | | | — | | | — | | | 2,212 | | | — | | | — | | | | | 2,213 | |
Treasury shares acquired | — | | | — | | | — | | | — | | | 1,744,616 | | | (116,960) | | | — | | | — | | | — | | | | | (116,960) | |
Share repurchase to settle shareholder tax obligations | — | | | — | | | (77,326) | | | (1) | | | — | | | — | | | (5,479) | | | — | | | — | | | | | (5,480) | |
Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 149,813 | | | — | | | | | 149,813 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (23,947) | | | | | (23,947) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Common shares dividend declared ($0.70 per share) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (39,214) | | | — | | | | | (39,214) | |
Preferred shares dividend declared | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (13,028) | | | — | | | | | (13,028) | |
Balance as of March 31, 2023 | 29,200,000 | | | $ | 730,000 | | | 81,441,414 | | | $ | 814 | | | 26,239,401 | | | $ | (1,194,519) | | | $ | 906,644 | | | $ | 2,629,499 | | | $ | 85,322 | | | | | $ | 3,157,760 | |
| | | | | | | | | | | | | | | | | | | | | |
Share-based compensation expense | — | | | — | | | — | | | — | | | — | | | — | | | 2,567 | | | — | | | — | | | | | 2,567 | |
Treasury shares acquired | — | | | — | | | — | | | — | | | 140,000 | | | (8,701) | | | — | | | — | | | — | | | | | (8,701) | |
| | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 141,762 | | | — | | | | | 141,762 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 28,209 | | | | | 28,209 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Common shares dividend declared ($0.70 per share) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (38,677) | | | — | | | | | (38,677) | |
Preferred shares dividend declared | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (13,028) | | | — | | | | | (13,028) | |
Balance as of June 30, 2023 | 29,200,000 | | | $ | 730,000 | | | 81,441,414 | | | $ | 814 | | | 26,379,401 | | | $ | (1,203,220) | | | $ | 909,211 | | | $ | 2,719,556 | | | $ | 113,531 | | | | | $ | 3,269,892 | |
Share-based compensation expense | — | | | — | | | 3,011 | | | — | | | — | | | — | | | 2,525 | | | — | | | — | | | | | 2,525 | |
Share repurchase to settle shareholder tax obligations | — | | | — | | | (3,864) | | | — | | | — | | | — | | | (323) | | | — | | | — | | | | | (323) | |
Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 69,701 | | | — | | | | | 69,701 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 19,619 | | | | | 19,619 | |
Reclassification of share-based awards to a liability | — | | | — | | | — | | | — | | | — | | | — | | | (16,109) | | | — | | | — | | | | | (16,109) | |
Return of capital to Parent | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (407,632) | | | — | | | | | (407,632) | |
Common shares dividend declared ($0.70 per share) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (39,296) | | | — | | | | | (39,296) | |
Preferred shares dividend declared | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (13,028) | | | — | | | | | (13,028) | |
Cancellation of Common Stock | — | | | — | | | (81,440,561) | | | (814) | | | — | | | — | | | 814 | | | — | | | — | | | | | — | |
Cancellation of Treasury Stock | — | | | — | | | — | | | — | | | (26,379,401) | | | 1,203,220 | | | (1,203,220) | | | — | | | — | | | | | — | |
Issuance of Common stock to Parent | — | | | — | | | 101,158,891 | | | 1,012 | | | — | | | — | | | (1,012) | | | — | | | — | | | | | — | |
Balance as of September 30, 2023 | 29,200,000 | | | $ | 730,000 | | | 101,158,891 | | | $ | 1,012 | | | — | | | $ | — | | | $ | (308,114) | | | $ | 2,329,301 | | | $ | 133,150 | | | | | $ | 2,885,349 | |
The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.
8
TRITON INTERNATIONAL LIMITED
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2024 | | 2023 |
Cash flows from operating activities: | | | |
Net income (loss) | $ | 353,632 | | | $ | 361,276 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Depreciation and amortization | 406,569 | | | 436,753 | |
Amortization of deferred debt cost and other debt related amortization | 7,086 | | | 6,000 | |
| | | |
Lease related amortization | 2,031 | | | 4,078 | |
| | | |
| | | |
Other non-cash compensation costs | 2,460 | | | 7,305 | |
Net (gain) loss on sale of leasing equipment | 6,061 | | | (49,401) | |
| | | |
| | | |
| | | |
Deferred income taxes | 3,031 | | | (1,022) | |
Changes in operating assets and liabilities: | | | |
Accounts receivable, net | 14,953 | | | (32,179) | |
Deferred revenue | (55,190) | | | (54,327) | |
Change in share-based awards liability | — | | | 18,765 | |
Accounts payable and other accrued expenses | 20,890 | | | 9,875 | |
Equipment sold (purchased) for resale activity | 8,067 | | | 15,101 | |
| | | |
Cash collections on finance lease receivables, net of income earned | 89,803 | | | 143,826 | |
Other assets | 8,720 | | | (3,096) | |
Net cash provided by (used in) operating activities | 868,113 | | | 862,954 | |
Cash flows from investing activities: | | | |
Purchases of leasing equipment and investments in finance leases | (666,319) | | | (151,361) | |
Proceeds from sale of equipment, net of selling costs | 286,096 | | | 272,633 | |
| | | |
Other | 114 | | | (133) | |
Net cash provided by (used in) investing activities | (380,109) | | | 121,139 | |
Cash flows from financing activities: | | | |
| | | |
| | | |
| | | |
Debt issuance costs | (18,815) | | | (3,008) | |
Borrowings under debt facilities | 2,410,483 | | | 1,570,000 | |
Payments under debt facilities and finance lease obligations | (2,423,613) | | | (1,888,800) | |
Dividends paid on preferred shares | (39,084) | | | (39,084) | |
Distributions to Parent | (404,984) | | | (407,632) | |
Dividends paid on common shares | — | | | (115,552) | |
| | | |
| | | |
Purchases of treasury shares | — | | | (129,776) | |
Other | — | | | (5,803) | |
Net cash provided by (used in) financing activities | (476,013) | | | (1,019,655) | |
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 11,991 | | | $ | (35,562) | |
Cash, cash equivalents and restricted cash, beginning of period | 149,226 | | | 186,309 | |
Cash, cash equivalents and restricted cash, end of period | $ | 161,217 | | | $ | 150,747 | |
Supplemental disclosures: | | | |
Interest paid | $ | 180,651 | | | $ | 167,980 | |
Income taxes paid (refunded) | $ | 13,669 | | | $ | 39,285 | |
Non-cash operating activities: | | | |
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 1,441 | | | $ | 9,102 | |
Non-cash investing activities: | | | |
Equipment purchases payable | $ | 173,606 | | | $ | 9,121 | |
The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.
9
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Description of the Business, Basis of Presentation and Accounting Policy Updates
Description of the Business
Triton International Limited ("Triton" or the "Company"), through its subsidiaries, leases intermodal transportation equipment, primarily maritime containers, and provides maritime container management services through a worldwide network of service subsidiaries, third-party depots and other facilities. The majority of the Company's business is derived from leasing its containers to shipping line customers through a variety of long-term and short-term contractual lease arrangements. The Company also sells containers from its equipment leasing fleet as well as containers specifically acquired for resale from third parties. The Company's registered office is located in Bermuda.
Basis of Presentation
The unaudited consolidated financial statements and accompanying notes include the accounts of the Company and its subsidiaries and have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information. Accordingly, these financial statements do not include all information and footnotes required by GAAP for complete financial statements.
The unaudited interim financial statements have been prepared on a basis consistent with the Company's annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary to state fairly the Company's financial position, results of operations, comprehensive income, shareholders' equity, and cash flows for the periods presented. The Consolidated Balance Sheet as of December 31, 2023, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures required by GAAP. The consolidated results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2024 or for any other future annual or interim period.
These financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2023 included in the Company's Annual Report on Form 10-K which was filed with the Securities and Exchange Commission on February 29, 2024. The unaudited consolidated financial statements include the accounts of the Company and subsidiaries in which it has a controlling interest, and variable interest entities of which the Company is the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to the accompanying prior period financial statements and notes to conform to the current year's presentation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities in the financial statements. Such estimates include, but are not limited to, the Company's estimates in connection with leasing equipment, including residual values and depreciable lives, values of assets held for sale and other long-lived assets, provision for income tax, allowance for doubtful accounts, components of compensation, goodwill and intangible assets. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company's equipment leases and trade receivables subject it to potential credit risk. The Company extends credit to its customers based upon an evaluation of each customer's financial condition and credit history. Evaluations of the financial condition and associated credit risk of customers are performed on an ongoing basis. As a percent of its lease billings, the Company's three largest customers accounted for 20%, 19%, and 12% for the nine months ended September 30, 2024 and 19%, 17% and 11% for the nine months ended September 30, 2023.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair Value Measurements
For information on the fair value of equipment held for sale, debt, and the fair value of derivative instruments, please refer to Note 3 - "Equipment Held for Sale", Note 7 - "Debt" and Note 8 - "Derivative Instruments", respectively.
Recently Issued Accounting Standards Not Yet Adopted
Segment Reporting
Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, was issued in November 2023, which requires enhancements to the disclosure requirements for operating segments, primarily disclosures about significant segment expenses, in the Company’s annual and interim consolidated financial statements. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, on a retrospective basis. The Company is currently evaluating the impact, if any, that the adoption of this standard will have on its segment disclosures.
Income Taxes
ASU No. 2023-09, Improvements to Income Tax Disclosures, was issued in December 2023, which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). The new guidance also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual reporting periods beginning after December 15, 2024. The Company is currently evaluating the impact that the adoption of this standard will have on its income tax disclosures.
Compensation Costs
ASU No. 2024-01, Compensation - Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards (“ASU 2024-01”), was issued in March 2024, to clarify the scope application of profits interest and similar awards and to add incremental clarity to help entities determine whether profits interest and similar awards should be accounted for as share-based payment arrangements within the scope of ASC 718, Compensation-Stock Compensation. ASU 2024-01 is effective for annual periods beginning after December 15, 2024 and interim periods within those annual periods with early adoption permitted. The Company intends to adopt ASU 2024-01 as of January 1, 2025 on a prospective basis, and does not expect this ASU to have an impact on the Company’s consolidated financial statements.
Note 2—Merger
Brookfield Infrastructure Transaction
On September 28, 2023, the Company completed the transactions contemplated by the Agreement and Plan of Merger, dated as of April 11, 2023 (the “Merger Agreement”), by and among the Company, Brookfield Infrastructure Corporation (“BIPC”), Thanos Holdings Limited (“Parent”) and Thanos MergerSub Limited, a subsidiary of Parent (“Merger Sub”). Pursuant to the Merger Agreement, Merger Sub merged with and into Triton (the “Merger”), with the Company surviving the Merger as a subsidiary of Parent.
The Company incurred certain costs related to the Merger that are included in Transaction and other costs in the Company’s Consolidated Statements of Operations. For the three and nine months ended September 30, 2024, transaction and other costs primarily consisted of employee incentive and retention compensation costs and legal expenses and other costs associated with the Merger. For the three and nine months ended September 30, 2023, transaction and other costs primarily consisted of employee incentive and retention compensation costs, financial advisory fees, and legal and professional expenses incurred in connection with the Merger. See Note 4 - "Other Compensation Costs - Other Compensation" for more detailed information regarding employee incentive and retention compensation.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3 —Equipment Held for Sale
The Company's equipment held for sale is recorded at the lower of fair value less cost to sell, or carrying value at the time identified for sale. Fair value is measured using Level 2 inputs and is based predominantly on recent sales prices. An impairment charge is recorded when the carrying value of the asset exceeds its fair value less cost to sell.
The following table summarizes the Company's components of Net gain (loss) on sale of leasing equipment on the Consolidated Statements of Operations (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Impairment (loss) reversal on equipment held for sale | $ | (947) | | | $ | (2,959) | | | $ | (3,028) | | | $ | (5,770) | |
Gain (loss) on sale of equipment, net of selling costs | 18,687 | | | 15,277 | | | 54,375 | | | 55,171 | |
Up-front (loss) on finance lease | (305) | | | — | | | (57,408) | | | — | |
Net gain (loss) on sale of leasing equipment | $ | 17,435 | | | $ | 12,318 | | | $ | (6,061) | | | $ | 49,401 | |
During 2024, the Company entered into a finance lease transaction which included certain containers purchased during the COVID-19 pandemic with carrying values that were higher than current market values, resulting in an up-front loss of $57.4 million and corresponding reduction to the net book value of revenue earning assets.
Note 4—Other Compensation Costs
Long-Term Cash Incentive Plan
During the first quarter of 2024, the Company adopted a Long-Term Cash Incentive Plan that allows incentive awards to be granted to certain employees and consultants of the Company. The Company granted 2024 long-term cash incentive awards with a specified cash target value (“2024 LTIP Awards”) during the first quarter of 2024. The 2024 LTIP Awards will vest in equal installments on January 15, 2026 and January 15, 2027, subject to the participant's continued service with the Company. Payouts of the awards will be based on changes in the Company’s valuation, plus cumulative cash dividends and return of capital distributions paid by the Company over the vesting period. Changes in the aggregate target value at each subsequent reporting date will be recognized as compensation expense based on the portion of vesting or service period lapsed from the grant date through the reporting date.
The aggregate target value of the 2024 LTIP Awards at September 30, 2024 was $13.0 million, which will be recognized as compensation expense over the vesting period. For the three and nine months ended September 30, 2024, the Company recognized $1.4 million and $3.3 million, respectively, of compensation expense for the 2024 LTIP Awards in Administrative expenses on the Consolidated Statements of Operations.
Long-Term Incentive Awards
In the fourth quarter of 2023, certain senior executives of the Company were granted 750 incentive units pursuant to a long-term incentive program established by Brookfield Infrastructure. The awards (the “Incentive Units”) will vest in five equal annual installments on each of the first five anniversaries of the closing date of the Merger, subject to the participants' continued employment or service. During the second quarter of 2024, 125 additional Incentive Units were granted under this program in the form of bonus unit awards. The total number of Incentive Units granted under the long-term incentive program was 875 as of September 30, 2024. Payment obligations under the program (if any) are the responsibility of Brookfield Infrastructure. For additional information regarding the Incentive Units, please refer to the section titled "Post-Merger Long-Term Incentive Awards Granted by Brookfield Infrastructure" in Part III, Item 11. "Executive Compensation" in the 2023 Annual Report on Form 10-K.
The Company will recognize compensation cost for the Incentive Units on a straight-line basis over the five-year vesting period based on the fair value of the awards. The fair value at grant date of $16.4 million relates to both units issued and additional units that are expected to be issued under this program. Changes in the fair value at each subsequent reporting date will be recognized as compensation expense based on the portion of vesting or service period lapsed from the grant date
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
through the reporting date. Based on a review of the valuation of the Company at the first anniversary date of the Merger, the fair value of these awards at grant date of $16.4 million did not materially change. The fair value as of September 30, 2024 was calculated using a Black-Scholes pricing formula including the following significant assumptions:
| | | | | |
| |
Underlying market price per share | $ | 109.70 | |
| |
Volatility | 34.00 | % |
Expected term | 4 years |
Risk-free rate | 3.86 | % |
For the three and nine months ended September 30, 2024, the Company recognized $0.8 million and $2.5 million, respectively, of compensation expense for the Incentive Units in Administrative expenses on the Consolidated Statements of Operations.
Other Compensation
Prior to the completion of the Merger, the Company recognized share-based compensation expense for share-based awards based on the grant date fair value. The expense was recognized over the employee's requisite service period, or vesting period of the equity award, approximately three years. The Company recognized share-based compensation expense in Administrative expenses of $2.5 million and $7.3 million for the three and nine months ended September 30, 2023, respectively.
In accordance with the Merger Agreement, upon closing of the Merger, Triton’s unvested restricted shares and restricted share units that were outstanding immediately prior to the closing of the Merger were converted into a contingent right to receive cash equal to the number of shares subject to such award, assuming attainment of the maximum level of performance for performance-based awards, multiplied by $83.16 per share, plus accrued dividends. This amount will be paid upon the earlier of the original vesting date of the award and the twelve-month anniversary of the Merger closing date subject to the participant's continued service with the Company. The modification of the unvested share-based awards changed the classification of the awards from equity to liability, as well as modified the original service period of the awards. As a result of the change in the classification of the awards, the Accrued compensation liability at September 30, 2023 included a $16.1 million reclassification from equity, plus previously accrued dividends of $2.9 million. For both the three and nine months ended September 30, 2023, Transaction and other costs included $18.8 million in incremental employee compensation costs to recognize the fair value of the awards based on the portion of the service period completed at the time of modification.
The following table summarizes activity related to these awards for the nine months ended September 30, 2024 (in millions):
| | | | | |
Accrued compensation liability at December 31, 2023 | $ | 41.6 | |
Compensation expense(1) | 11.9 |
Payments(2) | (18.0) | |
| |
| |
Accrued compensation liability at September 30, 2024(3) | $ | 35.5 | |
| |
| |
(1) Included in Transaction and other costs in the Consolidated Statements of Operations.
(2) Amounts paid to participants primarily related to awards granted in 2021 that vested in January 2024.
(3) Amounts accrued to be paid during the fourth quarter of 2024.
Transaction and other costs also included retention compensation expense related to the Merger of $0.6 million and $2.2 million for the three and nine months ended September 30, 2024, respectively and $1.4 million for both the three and nine months ended September 30, 2023. As of September 30, 2024, the accrued retention liability was paid out in full. See Note 2 - "Merger" for more detailed information regarding Merger costs.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 5—Other Equity Matters
In connection with the Merger, all previously issued and outstanding common shares of Triton were cancelled and following the closing of the Merger, 100% of the Company’s issued and outstanding common shares are privately held by an affiliate of Brookfield Infrastructure.
During the nine months ended September 30, 2024, the Company paid cash dividends of $400.0 million to Parent. The Company also paid $5.0 million in cash distributions to Parent for the reimbursement of or payment of transaction costs related to the Merger. In addition, the Company received a capital contribution of $1.9 million from a Brookfield affiliate in connection with the Merger that was distributed as a dividend to Parent.
Preference Shares
The following table summarizes the Company's preference share issuances (each, a "Series"):
| | | | | | | | | | | | | | | | | | | | | |
Preference Share Series | | Issuance | | | Liquidation Preference (in thousands) | | # of Shares(1) |
Series A 8.50% Cumulative Redeemable Perpetual Preference Shares ("Series A") | | March 2019 | | | $ | 86,250 | | | 3,450,000 | |
Series B 8.00% Cumulative Redeemable Perpetual Preference Shares ("Series B") | | June 2019 | | | 143,750 | | | 5,750,000 | |
Series C 7.375% Cumulative Redeemable Perpetual Preference Shares ("Series C") | | November 2019 | | | 175,000 | | | 7,000,000 | |
Series D 6.875% Cumulative Redeemable Perpetual Preference Shares ("Series D") | | January 2020 | | | 150,000 | | | 6,000,000 | |
Series E 5.75% Cumulative Redeemable Perpetual Preference Shares ("Series E") | | August 2021 | | | 175,000 | | | 7,000,000 | |
| | | | | $ | 730,000 | | | 29,200,000 | |
(1) Represents number of shares authorized, issued, and outstanding.
Each Series of preference shares may be redeemed at the Company's option, at any time after approximately five years from original issuance, in whole or in part at a redemption price, plus an amount equal to all accumulated and unpaid dividends, whether or not declared. The Company may also redeem each Series of preference shares prior to the lapse of the five year period upon the occurrence of certain events as described in each instrument, such as transactions that either transfer ownership of substantially all assets to a single entity or establish a majority voting interest by a single entity, and cause a downgrade or withdrawal of rating by the rating agency within 60 days of the event. If the Company does not elect to redeem each Series upon the occurrence of the preceding events, holders of preference shares may have the right to convert their preference shares into common shares. Specifically for Series E only, the Company may redeem the Series E Preference Shares if an applicable rating agency changes the methodology or criteria that were employed in assigning equity credit to securities similar to the Series E Preference Shares when originally issued, which either (a) shortens the period of time during which equity credit pertaining to the Series E Preference Shares would have been in effect had the methodology not been changed or (b) reduces the amount of equity credit as compared with the amount of equity credit that the rating agency had assigned to the Series E Preference Shares when originally issued.
Holders of preference shares generally have no voting rights. If the Company fails to pay dividends for six or more quarterly periods (whether or not consecutive), holders will be entitled to elect two additional directors to the Board of Directors and the size of the Board of Directors will be increased to accommodate such election. Such right to elect two directors will continue until such time as there are no accumulated and unpaid dividends in arrears.
Dividends
Dividends on shares of each Series are cumulative from the date of original issue and will be payable quarterly in arrears on the 15th day of March, June, September and December of each year, when, as and if declared by the Company's Board of Directors. Dividends will be payable equal to the stated rate per annum of the $25.00 liquidation preference per share. The Series rank senior to the Company's common shares with respect to dividend rights and rights upon the Company's liquidation, dissolution or winding up, whether voluntary or involuntary.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company paid the following quarterly dividends on its issued and outstanding Series (in millions except for the per-share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
Series | | Per Share Payment | | Aggregate Payment | | Per Share Payment | | Aggregate Payment | | Per Share Payment | | Aggregate Payment | | Per Share Payment | | Aggregate Payment |
A(1) | | $0.53 | | $1.8 | | $0.53 | | $1.8 | | $1.59 | | $5.4 | | $1.59 | | $5.4 |
B | | $0.50 | | $2.9 | | $0.50 | | $2.9 | | $1.50 | | $8.7 | | $1.50 | | $8.7 |
C(1) | | $0.46 | | $3.2 | | $0.46 | | $3.2 | | $1.38 | | $9.6 | | $1.38 | | $9.6 |
D(1) | | $0.43 | | $2.6 | | $0.43 | | $2.6 | | $1.29 | | $7.8 | | $1.29 | | $7.8 |
E(1) | | $0.36 | | $2.5 | | $0.36 | | $2.5 | | $1.08 | | $7.6 | | $1.08 | | $7.6 |
Total | | | | $13.0 | | | | $13.0 | | | | $39.1 | | | | $39.1 |
(1) Per share payments rounded to the nearest whole cent.
As of September 30, 2024, the Company had cumulative unpaid preference dividends of $2.2 million.
Note 6—Leases
Lessee
The Company leases office facilities under various cancellable and non-cancellable operating leases, most of which provide extension or early termination options. The Company's lease agreements do not contain any residual value guarantees or material restrictive covenants.
The following table summarizes the impact of the Company's leases in its financial statements (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
Balance Sheet | | Financial statement caption | | | | September 30, 2024 | | December 31, 2023 |
Right-of-use asset - operating | | Other assets | | | | $ | 10,069 | | | $ | 10,093 | |
Lease liability - operating | | Accounts payable and other accrued expenses | | | | $ | 13,817 | | | $ | 13,510 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
Income Statement | | Financial statement caption | | 2024 | | 2023 | | 2024 | | 2023 |
Operating lease cost(1) | | Administrative expenses | | $ | 740 | | | $ | 652 | | | $ | 2,208 | | | $ | 2,127 | |
(1) Includes short-term leases that are immaterial.
Cash paid for amounts included in the measurement of lease liabilities included in operating cash flows was $1.8 million and $2.4 million for the nine months ended September 30, 2024 and 2023, respectively.
The following table includes supplemental information related to the Company's operating leases:
| | | | | | | |
| September 30, 2024 | | |
Weighted-Average Remaining Lease Term | 9.0 years | | |
Weighted-Average Discount Rate | 5.72 | % | | |
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Lessor
Operating Leases
As of September 30, 2024, the Company has deferred revenue balances related to operating leases with uneven payment terms. These amounts will be amortized into revenue as follows (in thousands):
| | | | | |
Year ending December 31, | |
2024 (Remaining 3 months) | $ | 19,045 | |
2025 | 65,995 | |
2026 | 43,231 | |
2027 | 16,736 | |
2028 | 15,568 | |
2029 and thereafter | 43,258 | |
Total | $ | 203,833 | |
Finance Leases
The following table summarizes the components of the net investment in finance leases (in thousands):
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
Future minimum lease payment receivable(1) | $ | 2,038,178 | | | $ | 1,928,167 | |
Estimated residual receivable(2) | 269,270 | | | 218,199 | |
| | | |
Gross finance lease receivables(3) | 2,307,448 | | | 2,146,366 | |
Unearned income(4) | (699,282) | | | (636,486) | |
Finance lease reserve(5) | — | | | (2,588) | |
Net investment in finance leases(6) | $ | 1,608,166 | | | $ | 1,507,292 | |
(1) There were no executory costs included in gross finance lease receivables as of September 30, 2024 and December 31, 2023.
(2) The Company's finance leases generally include a purchase option at nominal amounts that is reasonably certain to be exercised, and therefore, the Company has immaterial residual value risk for assets.
(3) The gross finance lease receivable is reduced as billed to customers and reclassified to accounts receivable until paid by customers.
(4) There were no unamortized initial direct costs as of September 30, 2024 and December 31, 2023.
(5) The Company reversed the finance lease reserve during the second quarter of 2024.
(6) One major customer represented 93% of the Company's finance lease portfolio as of September 30, 2024 and December 31, 2023, respectively. No other customer represented more than 10% of the Company's finance lease portfolio in each of those periods.
The Company’s finance lease portfolio customers are primarily large international shipping lines. In its estimate of expected credit losses, the Company evaluates the overall credit quality of its finance lease portfolio. The Company considers an account past due when a payment has not been received in accordance with the terms of the related lease agreement and maintains allowances, if necessary, for doubtful accounts. These allowances are based on, but not limited to, historical experience which includes stronger and weaker economic cycles, each lessee's payment history, management's current assessment of each lessee's financial condition, consideration of current economic conditions and reasonable market forecasts.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 7—Debt
The table below summarizes the Company's key terms and carrying value of debt as of the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
| Outstanding Borrowings (in thousands) | | Contractual Weighted Avg Interest Rate | | Maturity Range | | Outstanding Borrowings (in thousands) |
| | | From | | To | |
| | | | | | | | | |
Secured Debt Financings | | | | | | | | | |
Securitization ("ABS") term instruments | $ | 3,125,447 | | | 2.92% | | February 2028 | | February 2035 | | $ | 2,579,832 | |
Securitization warehouse | 60,000 | | | 6.85% | | January 2031 | | January 2031 | | 240,000 | |
| | | | | | | | | |
Total secured debt financings | 3,185,447 | | | | | | | | | 2,819,832 | |
Unsecured Debt Financings | | | | | | | | | |
Senior notes | 1,800,000 | | | 2.82% | | April 2026 | | March 2032 | | 2,300,000 | |
Credit facility: | | | | | | | | | |
Revolving credit tranche | 805,000 | | | 6.13% | | July 2029 | | July 2029 | | 930,000 | |
Term loan tranche | 1,715,000 | | | 6.13% | | July 2029 | | July 2029 | | 1,468,496 | |
Total unsecured debt financings | 4,320,000 | | | | | | | | | 4,698,496 | |
Total debt financings | $ | 7,505,447 | | | | | | | | | $ | 7,518,328 | |
Unamortized debt costs | (51,746) | | | | | | | | | (43,924) | |
Unamortized debt premiums & discounts | (3,414) | | | | | | | | | (3,770) | |
| | | | | | | | | |
Debt, net of unamortized costs | $ | 7,450,287 | | | | | | | | | $ | 7,470,634 | |
Securitization Term Instruments
Under the Company's ABS facilities, indirect wholly-owned subsidiaries of the Company enter into debt agreements for ABS term instruments, including ABS notes. These subsidiaries are intended to be bankruptcy remote so that such assets are not available to creditors of the Company or its affiliates until and unless the related secured borrowings have been fully discharged. These transactions do not meet accounting requirements for sales treatment and are recorded as secured borrowings.
The Company’s borrowings under the ABS facilities amortize in monthly installments, typically in level payments over five or more years. These facilities provide for an advance rate against the net book values of designated eligible equipment. The net book values for purposes of calculating eligible equipment is determined according to the related debt agreement and may be different than those calculated per GAAP. The Company is required to maintain restricted cash balances on deposit in designated bank accounts equal to nine months of interest expense on certain securitized term instruments.
In the second and third quarters of 2024, the Company issued a series of ABS fixed-rate notes in the amounts of $450.0 million and $351.9 million at weighted average interest rates of 5.55% and 5.63% and expected maturity dates of May 2034 and February 2035, respectively. The proceeds from these issuances were primarily used to pay down borrowings under the Company's revolving credit facilities.
In the first quarter of 2024, the Company obtained $57.0 million in irrevocable standby letters of credit to satisfy the restricted cash balance requirements equal to nine months of interest expense on the ABS facilities, inclusive of a $18.7 million irrevocable standby letter of credit related to the ABS fixed-rate notes issued in the second quarter of 2024. The restricted cash balance held by the Trustee in designated bank accounts of $38.3 million was released to the Company subsequent to the issuance of the letters of credit.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Securitization Warehouse
Under the Company’s ABS warehouse facility, an indirect wholly-owned subsidiary of the Company issues ABS notes. This subsidiary is intended to be bankruptcy remote so that such assets are not available to creditors of the Company or its affiliates until and unless the related secured borrowings have been fully discharged. These transactions do not meet accounting requirements for sales treatment and are recorded as secured borrowings.
The Company's ABS warehouse facility has a borrowing capacity of $1,125.0 million that is available on a revolving basis, paying interest at term Secured Overnight Financing Rate ("SOFR") plus 1.60%. In the first quarter of 2024, the Company amended its ABS warehouse facility to extend the conversion date from April 27, 2025 to January 22, 2027. After the revolving period, borrowings will convert to term notes with a final maturity date of January 22, 2031 and pay interest at daily compound SOFR plus 2.60%. The interest rate benchmark was amended from term SOFR to daily compounded SOFR. The margin over the benchmark rate was unchanged as a result of the amendment.
During the revolving period, the borrowing capacity under this facility is determined by applying an advance rate against the net book values of designated eligible equipment. The net book values for purposes of calculating eligible equipment are determined according to the related debt agreement and may be different than those calculated per GAAP. The Company is required to maintain restricted cash balances on deposit in designated bank accounts equal to three months of interest expense.
Senior Notes
The Company’s senior notes are unsecured and have initial maturities ranging from five to ten years and interest payments due semi-annually. The senior notes are prepayable (in whole or in part) at the Company's option at any time prior to the maturity date, subject to certain provisions in the senior note agreements, including the payment of a make-whole premium in respect to such prepayment.
In the second quarter of 2024, the Company’s $500.0 million 1.15% senior notes matured. Payment at maturity was primarily funded by borrowings under Triton’s revolving credit facility.
Credit Facility
In the third quarter of 2024, the Company amended and restated its existing $2,000.0 million revolving credit facility to add a new $1,750.0 million term loan tranche under the credit facility. Term loan borrowings under the credit facility amortize in quarterly installments. The amendment and restatement also transitioned the reference rate from term to daily SOFR, increased the accordion feature available under the credit facility from $500.0 million to $1,000.0 million (or more in certain instances) and extended the maturity date of the credit facility to July 9, 2029. The interest rate under the credit facility is daily SOFR plus 1.30%. The credit facility is subject to covenants customary for financings of this type, including financial covenants that require the Company to maintain a minimum ratio of unencumbered assets to certain financial indebtedness.
Proceeds from the credit facility were used in part to prepay the Company’s former term loan facility, which was then terminated. The termination of the former term loan facility and addition of the term loan tranche under the credit facility were accounted for as a debt modification and, accordingly, financing fees paid were deferred and $0.1 million of the unamortized fees from the existing term loan facility were written off and included in Other (income) expense, net on the Consolidated Statement of Operations.
Derivative Impact on Debt
The Company hedges the risks associated with fluctuations in interest rates on a portion of its floating-rate debt by entering into interest rate swap agreements that convert a portion of its floating-rate debt to a fixed-rate basis, thus reducing the impact of interest rate changes on future interest expense.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the Company's outstanding fixed-rate and floating-rate debt as of September 30, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance Outstanding (in thousands) | | Contractual Weighted Avg Interest Rate | | Maturity Range | | Weighted Avg Remaining Term |
| | | From | | To | |
Excluding impact of derivative instruments: | | | | | | | | | |
Fixed-rate debt | $ | 4,925,447 | | | 2.88% | | Apr 2026 | | Feb 2035 | | 4.4 years |
Floating-rate debt | $ | 2,580,000 | | | 6.15% | | Jul 2029 | | Jan 2031 | | 4.2 years |
| | | | | | | | | |
Including impact of derivative instruments: | | | | | | | | | |
Fixed-rate debt | $ | 4,925,447 | | | 2.88% | | | | | | |
Hedged floating-rate debt | $ | 1,878,250 | | | 3.84% | | | | | | |
Total fixed and hedged debt | $ | 6,803,697 | | | 3.15% | | | | | | |
Unhedged floating-rate debt | $ | 701,750 | | | 6.15% | | | | | | |
Total debt | $ | 7,505,447 | | | 3.35% | | | | | | |
The fair value of total debt outstanding was $7,155.9 million and $6,905.9 million as of September 30, 2024 and December 31, 2023, respectively, and was measured using Level 1 and Level 2 inputs.
As of September 30, 2024, the maximum borrowing levels for the ABS warehouse and the revolving credit tranche under the credit facility were $1,125.0 million and $2,000.0 million, respectively. These facilities are governed by either borrowing bases or an unencumbered asset test that limits borrowing capacity. Based on those limitations, the availability under these revolving credit facilities at September 30, 2024 was approximately $995.0 million.
The Company is subject to certain financial covenants under its debt financings. As of September 30, 2024, the Company was in compliance with all financial covenants in accordance with the terms of its debt agreements.
Note 8—Derivative Instruments
Interest Rate Swaps / Caps
The Company enters into derivative agreements to manage interest rate risk exposure. Interest rate swap agreements are utilized to limit the Company's exposure to interest rate risk by converting a portion of its floating-rate debt to a fixed-rate basis, thus reducing the impact of interest rate changes on future interest expense. Interest rate swaps involve the receipt of floating-rate amounts in exchange for fixed-rate interest payments over the lives of the agreements without an exchange of the underlying principal amounts. These swaps are designated as cash flow hedges for accounting purposes and accordingly, changes in the fair value are recorded in accumulated other comprehensive income (loss) and reclassified to interest and debt expense when they are realized.
In the first quarter of 2024, the Company entered into offsetting $500.0 million notional interest rate cap agreements with substantially similar economic terms related to certain debt facility requirements. These derivatives are not designated as hedging instruments, and because they offset, changes in fair value have an immaterial impact on the financial statements.
The counterparties to these agreements are highly rated financial institutions. In the unlikely event that the counterparties fail to meet the terms of these agreements, the Company's exposure is limited to the interest rate differential on the notional amount at each monthly settlement period over the life of the agreements. The Company does not anticipate any non-performance by the counterparties.
Certain assets of the Company's subsidiaries are pledged as collateral for various ABS facilities. Additionally, the Company may be required to post cash collateral on certain derivative agreements if the fair value of these contracts represents a liability. Any amounts of cash collateral posted are included in Other assets on the Consolidated Balance Sheets and are presented in operating activities on the Consolidated Statements of Cash Flows. As of September 30, 2024, the Company had cash collateral on derivative instruments of $0.7 million.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Within the next twelve months, the Company expects to reclassify $22.6 million of net unrealized and realized gains related to derivative instruments designated as cash flow hedges from accumulated other comprehensive income (loss) into earnings.
As of September 30, 2024, the Company had derivative agreements in place to fix interest rates on a portion of the borrowings under its debt facilities with floating interest rates as summarized below:
| | | | | | | | | | | | | | | | | | | | | | |
Derivatives | | Notional Amount (in millions) | | Weighted Average Fixed Leg (Pay) Interest Rate | | | | Weighted Average Remaining Term |
Interest Rate Swap | | $1,878.3 | | 2.53% | | | | 3.8 years |
| | | | | | | | |
The following table summarizes the impact of derivative instruments on the Consolidated Statements of Operations and the Consolidated Statements of Comprehensive Income on a pretax basis (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Financial statement caption | | 2024 | | 2023 | | 2024 | | 2023 |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Designated Derivative Instruments | | | | | | | | | |
Realized (gains) losses | Interest and debt (income) expense | | $ | (13,848) | | | $ | (13,030) | | | $ | (42,826) | | | $ | (34,183) | |
Unrealized (gains) losses | Comprehensive (income) loss | | $ | 41,320 | | | $ | (32,317) | | | $ | (10,391) | | | $ | (56,646) | |
| | | | | | | | | |
| | | | | | | | | |
Fair Value of Derivative Instruments
The Company presents the fair value of derivative instruments on a gross basis as a separate line item on the Consolidated Balance Sheets.
The Company has elected to use the income approach to value its interest rate swap and cap agreements, using Level 2 market expectations at the measurement date and standard valuation techniques to convert future values to a single discounted present value. The Level 2 inputs for the interest rate swap and cap valuations are inputs other than quoted prices that are observable for the asset or liability (specifically SOFR and swap rates and credit risk at commonly quoted intervals).
Note 9—Segment and Geographic Information
Segment Information
The Company operates its business in one industry, intermodal transportation equipment, and has two operating segments which also represent its reporting segments:
•Equipment leasing - the Company owns, leases and ultimately disposes of containers and chassis from its lease fleet.
•Equipment trading - the Company purchases containers from shipping line customers, and other sellers of containers, and resells these containers to container retailers and users of containers for storage or one-way shipment. Included in the equipment trading segment revenues are leasing revenues from equipment purchased for resale that is currently on lease until the containers are dropped off.
These operating segments were determined based on the chief operating decision maker's review and resource allocation of the products and services offered.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables summarizes the Company's segment information and the consolidated totals reported (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2024 | | 2023 |
| Equipment Leasing | | Equipment Trading | | Totals | | Equipment Leasing | | Equipment Trading | | Totals |
Total leasing revenues | $ | 389,297 | | | $ | 2,022 | | | $ | 391,319 | | | $ | 383,342 | | | $ | 1,559 | | | $ | 384,901 | |
Trading margin | — | | | 1,053 | | | 1,053 | | | — | | | 4,508 | | | 4,508 | |
Net gain (loss) on sale of leasing equipment | 17,435 | | | — | | | 17,435 | | | 12,318 | | | — | | | 12,318 | |
Depreciation and amortization | 134,744 | | | 208 | | | 134,952 | | | 141,237 | | | 201 | | | 141,438 | |
Interest and debt expense | 67,232 | | | 172 | | | 67,404 | | | 59,823 | | | 250 | | | 60,073 | |
| | | | | | | | | | | |
Segment income (loss) before income taxes(1) | 163,518 | | | 2,638 | | | 166,156 | | | 75,446 | | | 5,643 | | | 81,089 | |
Purchases of leasing equipment and investments in finance leases(2) | $ | 298,159 | | | $ | — | | | $ | 298,159 | | | $ | 31,847 | | | $ | — | | | $ | 31,847 | |
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| Nine Months Ended September 30, |
| 2024 | | 2023 |
| Equipment Leasing | | Equipment Trading | | Totals | | Equipment Leasing | | Equipment Trading | | Totals |
Total leasing revenues | $ | 1,135,851 | | | $ | 5,742 | | | $ | 1,141,593 | | | $ | 1,164,019 | | | $ | 5,144 | | | $ | 1,169,163 | |
Trading margin | |