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Edited Transcript of TRTN earnings conference call or presentation 24-Apr-20 12:30pm GMT

·30 mins read

Q1 2020 Triton International Ltd Earnings Call HAMILTON Jun 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Triton International Ltd earnings conference call or presentation Friday, April 24, 2020 at 12:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Brian M. Sondey Triton International Limited - Chairman & CEO * John C. Burns Triton International Limited - Senior VP & CFO * John F. O'Callaghan Triton International Limited - Executive VP and Global Head of Field Marketing & Operations ================================================================================ Conference Call Participants ================================================================================ * Kenneth Scott Hoexter BofA Merrill Lynch, Research Division - MD and Co-Head of the Industrials * Lawrence Scott Solow CJS Securities, Inc. - MD * Michael C. Brown Keefe, Bruyette, & Woods, Inc., Research Division - Associate ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning. And welcome to the Triton International Limited First Quarter 2020 Earnings Release Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to John Burns, CFO. Please go ahead. -------------------------------------------------------------------------------- John C. Burns, Triton International Limited - Senior VP & CFO [2] -------------------------------------------------------------------------------- Thank you. Good morning. And thank you for joining us on today's call. We are here to discuss Triton's first quarter 2020 results, which were reported this morning. Joining me on this morning's call from Triton is Brian Sondey, our CEO; and John O'Callaghan, our Global Head of Marketing and Operations. Before I turn the call over to Brian, I would like to note that our prepared remarks will follow along a presentation that can be found in the Investors section of our website under Investor Presentations. I'd like to direct you to Slide 2 of that presentation and remind you that today's presentation includes forward-looking statements that reflect Triton's current view with respect to future events, financial performance and industry conditions. These forward-looking statements are subject to various risks and uncertainties. Triton has provided additional information in its reports on file with the SEC concerning factors that could cause actual results to differ materially from those contained in this presentation, and we encourage you to review these factors. In addition, reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the earnings release and presentation. With these formalities out of the way, I'll now turn the call over to Brian. -------------------------------------------------------------------------------- Brian M. Sondey, Triton International Limited - Chairman & CEO [3] -------------------------------------------------------------------------------- Thanks, John, and welcome to Triton International's First Quarter 2020 Earnings Conference Call. Before I start with the main presentation, I would like to thank all of our employees for their extraordinary efforts over the last few months. This, of course, has been a difficult time for everyone. But Triton has been able to transition seamlessly to working fully remotely. Our team has maintained their strong focus on our customers and make sure our internal and external operations are proceeding smoothly. I would also like to thank our customers for their close communication and ongoing support. We are proud to be part of your efforts to keep vital global supply chains moving during this extraordinary time. I'll now start the presentation with Slide 3. Triton achieved solid results in the first quarter of 2020 despite facing significant market disruptions from the COVID-19 outbreak. Triton generated $67.1 million of adjusted net income in the first quarter or $0.93 per share. We also achieved an annualized return on equity of 13.1%. We expect the impacts from COVID-19 to increase in the second quarter as the effect of the widespread business shutdowns fully weigh on economic and trade activity. But Triton is well positioned to manage through the current challenging time and benefit from eventual recovery. Our high-quality lease portfolio continues to generate strong and stable cash flow. Our leverage is well below our typical level. We have over $500 million of cash on hand plus extensive borrowing availability. And we have a large share of the available container in key demand areas and are ready to support our customers with our unrivaled container supply capability when the market recovers. Triton continues to use our strong cash flow to drive shareholder value. We have ordered $193 million of containers for delivery this year. We declared a $0.52 per share dividend this quarter. We have repurchased 2.1 million shares so far in 2020 and have now purchased over 13% of our outstanding shares since the current program started in August of 2018. And we recently re-upped our share repurchase authorization to $200 million. I will now hand the call over to John O'Callaghan, our Global Head of Marketing and Operations. -------------------------------------------------------------------------------- John F. O'Callaghan, Triton International Limited - Executive VP and Global Head of Field Marketing & Operations [4] -------------------------------------------------------------------------------- Thank you, Brian. Turning to Slide 4. As Brian mentioned, COVID-19 is having a significant impact on trade volumes. All manufacturing in China closed for the Chinese New Year holiday period at the end of January and remained closed through February as China implemented extensive work restrictions due to the COVID-19 outbreak. As these restrictions eased in China, export volumes started to recover through March, with exports from China starting to approach normal levels by the end of the month. Our customers are now preparing for another significant decrease in cargo volumes in the second quarter resulting from the spread of COVID-19 and the extensive global economic shutdowns. The expectation is that May and June will be exceptionally slow for the transpacific and the East/West trade. While we expect underlying trade volumes to be very weak in the second quarter, we have not seen a major impact on our own operations. Although we're not seeing much pickup activity, container off-hires are moderate, and utilization is holding up well, on average, dropping 40 basis points over the quarter. We are well protected for the near-term drop-off risk due to our long-term lease portfolio. Another factor supporting our performance right now is that the operational and container flow disruptions actually created more need for containers because containers have been stuck in terminals and movement is disrupted by blank sailings. In addition, the distribution challenges for cargo movers are leading to them to use containers for longer-term storage. Refrigerated containers are also not typically heavily impacted by economic cycles. And we are also seeing refrigerated containers being used as storage for food as the cold chain gets backed up. New container prices have increased strongly in the first quarter due to an early expectation for increased demand in 2020 and by actions taken by container manufacturers to reduce production capacity. 20-foot dry container prices increased from under $1,800 at the end of last year to the $2,150 range in March. While demand expectations for 2020 are much reduced, the capacity reductions remain in place, and container prices remain above $2,000. Our business continues to be actively managed remotely with the team performing well. There were no disruptions serving our customers or with internal processes. I would like to congratulate and thank our team for their extraordinary efforts. Moving to Slide 5. Slide 5 shows Triton's key operating metrics. Triton's operating performance remained solid through the first quarter. Drop-offs remained moderate in the first quarter despite the COVID disruptions in China, and we have not seen an acceleration of container returns in April. Our utilization averaged 95.4% in the first quarter. And so far, it dropped 10 basis points in April. Our average selling prices remained at healthy levels. We continue to generate gains on used container disposals through that period. Moving to Slide 6. Slide 6 looks at the key measures of container supply and demand. The chart on the upper left illustrates the general expectation that the global economy and trade will contract deeply in 2020. We expect the contraction in the second quarter to be well into the double digits, though the industry is hoping we'll see volumes recover in the second half year. The bottom 2 charts are measure of supply. New container production volumes were very low from the third quarter in 2019 to the first quarter of 2020, with production over that time considerably less than our estimate for container disposals. We expect container production to increase in the second quarter due to orders placed earlier in the year, but since then, new orders have been low for the last month. We expect new container production will decrease again in the third quarter if we do not see an improvement in market conditions. The inventory of new container in the factory is moderate with just under 800,000 TEU, presenting slightly over 2% of global container capacity. I'll now hand you over to John Burns, our CFO. -------------------------------------------------------------------------------- John C. Burns, Triton International Limited - Senior VP & CFO [5] -------------------------------------------------------------------------------- Thank you, John. Turning to Page 7. On this page, we've presented our consolidated financial results. Adjusted net income for the first quarter was $67.1 million or $0.93 per share, a decrease of 13% from the fourth quarter. The solid results represent a return on equity of 13.1%. Turning to Page 8. Our results from the first quarter compared to the fourth quarter were largely driven by the normal seasonal slowdown compounded by the initial impacts of the coronavirus. We continue to limit investment in containers as lease demand has been limited, resulting in a 1.5% decrease in our revenue earning assets since year-end. The decrease in our fleet, together with a 40 basis point decline in utilization, drove a 2.9% decrease in leasing revenue compared to the fourth quarter. Our direct operating expenses, which are largely made up of storage for off-hire units and repairs for containers redelivered, decreased by $500,000 as lower redeliveries in the first quarter reduced repair costs, offsetting an increase in storage expense. In the first quarter, we provided a $3.9 million allowance against the receivables of a mid-sized customer whose payments have deteriorated. However, overall customer payment performance remained strong in the first quarter. We generated solid gains on sales and trading margins in the first quarter, though they were down $1.1 million from the fourth quarter due to a decline in sales volume and a small reduction in sales prices. We increased our share repurchase during the first quarter, purchasing 1.4 million shares at an average price of $27.43 and have repurchased an additional 700,000 shares through April 17. Turning to Page 9. On this page, we've highlighted our strong balance sheet, significant liquidity and our well-structured debt maturity profile. We show our balance sheet as of December 2018 relative to our March 31 balance sheet to capture the full impact of the actions we have taken to strengthen our balance sheet over the last 5 quarters. Since the beginning of 2019, we issued $555 million of preferred shares. And due to the challenging market conditions, we limited our investment in new containers. Together, these actions have led to a significant reduction in our leverage. We focus on net debt as a percentage of revenue earning assets, or REA, as our key leverage metric. We typically manage our leverage based on our pre-purchase accounting balance sheet as our debt facilities are structured based on those asset values. As you can see below the pre-purchase accounting balance sheet, net debt to revenue earning assets has dropped from 74.5% at December of 2018 to 67.8% at March 31. This is the lowest level in our history. In addition to reducing our leverage, you can see in the table on the bottom left that we have significant liquidity. Our strong cash flow, current cash balances and additional availability under our credit facilities gives us liquidity of more than $2 billion in excess of our major cash commitments over the next 12 months. On the bottom-right graph, we show that we have a well-structured debt portfolio with no significant maturity cliffs, enabling us to meet our debt obligations from our cash flow, which is shown by the blue line, without the need for refinancing for several years. Overall, we believe we are well positioned to manage through the current environment and fully participate in the eventual recovery. Turning to Page 10. This page highlights how we've been able to use our strong cash flow to create significant long-term value for shareholders. The graph on the top left shows our cash flow before capital spending, and you can see the resiliency of our cash flows across market cycles. The stability of our cash flow, together with the short order cycle for containers, also enable us to maintain our leverage in a steady range over the long term, as shown in the graph on the bottom left. The graph on the right demonstrates how these strong cash flows and our financial stability have enabled us to create significant shareholder value by steadily growing the book value of the business while paying a substantial dividend. I will now return you to Brian for some additional comments. -------------------------------------------------------------------------------- Brian M. Sondey, Triton International Limited - Chairman & CEO [6] -------------------------------------------------------------------------------- Thanks, John. I'll wrap up the presentation with a few summary comments on Slide 11. Triton achieved solid performance in the first quarter despite facing significant economic and trade disruptions from the COVID-19 outbreak. Looking forward, we expect market conditions to be more challenging in the second quarter, and there's a high level of uncertainty to our outlook for the rest of the year. Trade volumes are expected to decrease significantly in the second quarter, and we expect to see weak dry container demand until global economic conditions recover. We are also facing elevated customer credit risk due to the sharp decrease in freight revenue for our customers. Credit risk will be especially high if the COVID-19 shocks result in a sustained economic and trade downturn. We have not yet seen a significant increase in container drop-off volumes. And container demand could spike if the global economy bounces back quickly from the COVID-19 shutdowns. Overall, we expect our adjusted net income to decrease from the first quarter of 2020 to the second quarter. The trajectory of our performance after the second quarter will be heavily impacted by the shape of the global recovery from COVID-19 and whether we face meaningful credit losses. Despite the significant challenges from COVID-19, we remain in strong shape to manage through the current environment, and we are well positioned to take advantage of the eventual market recovery. We remain the clear scale, cost and capability leader in our industry. Our well-structured lease portfolio continues to deliver strong and stable cash flow. Our balance sheet is in great shape. We stand ready to quickly provide large and creative container solutions for our customers. And we believe we are prepared to address unexpected challenges and quickly capitalize on any opportunities as they arise. I'll now open up the call for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from Michael Brown of KBW. -------------------------------------------------------------------------------- Michael C. Brown, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [2] -------------------------------------------------------------------------------- So I want to start with credit. I appreciate the color. Glad to hear that the payment trends have Generally been good. So if you could first start with where are the cracks that you're seeing near term that you're most focused on. And given your top 2 customers represent 35% of your lease billings and your top 5 is over 50%, can you specifically address how you feel about those customers specifically and how closely you're working with them to kind of understand your financial position? -------------------------------------------------------------------------------- Brian M. Sondey, Triton International Limited - Chairman & CEO [3] -------------------------------------------------------------------------------- Sure. In terms of what cracks we're seeing, I think the -- we took a reserve of $3.9 million in the first quarter for one of our customers. It's a mid-sized customer that has been really, I think, having financial challenges for some time and where we've seen erratic payments for some period of time but getting payments. We decided to take the reserve in the first quarter of this year as their payments, I'd say, slow a little more than they had been as well as just given our view that the environment has become more challenging. And so it just made losses on receivable more likely. In terms of other cracks, as we've said a few times, we didn't see a real problem with payments in the first quarter, and we haven't heard from customers, outside of the one we mentioned, talking about having inabilities to pay going forward. As you know, we typically don't take significant credit losses for a bunch of reasons. We believe we underwrite carefully. We focus our business on the strongest customers. Our customers, generally speaking, are large and have deep resources, many are supported by governments or bigger industrial conglomerates, and containers are critical to their operations. And so when we do see customers going to financial restructuring, especially big asset owners, typically, we see creditors wanting to have the operations continue, and therefore, we continue usually to get paid through financial restructurings. I'd say just a thing about the current situation, is it just -- I mean it's unprecedented. And just the size of the impacts on the economy and trade makes it very difficult to rely entirely on history. And so we are having some customers come to us and ask for payment delays or deferrals, other customers coming to see if they can reduce expenses in the near term. And actually, we're working constructively with customers. We often in these kind of situations look for win-win transactions, where we provide customers near-term relief in return for longer-term benefits for us. And we're having a number of those kinds of conversations. In terms of the structure of our lease portfolio, it's concentrated by the nature of our industry. The top, I think, 7 shipping lines probably represent 75% or more of operated vessel capacity in the world. And so there's no other really way to be in our business other than to be highly concentrated. Fortunately, the customers where we believe we have concentrations are great operators. Given their size, they're significant components of the global supply chain. And so we have a lot of faith in their resiliency. But certainly, it's a very unusual time out there. -------------------------------------------------------------------------------- Michael C. Brown, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [4] -------------------------------------------------------------------------------- Okay. Great. And then just given the years of experience here in this industry and for everyone on the call, would love to just get some color from you guys as to how this environment really compares to prior downturns. So assuming we enter recession and have kind of more of a projected downturn, not a V-shape recovery, how could the credit cost this time compare to the financial crisis or what we saw in 2015 and '16, including the Hanjin bankruptcy? -------------------------------------------------------------------------------- Brian M. Sondey, Triton International Limited - Chairman & CEO [5] -------------------------------------------------------------------------------- Yes. Sure. So I'd say that the unusual thing so far in this crisis is that while we had -- we did see trade volumes drop significantly in the first quarter because of the -- just the manufacturing problems in China, and there's expectations for a very significant decrease in trade volumes in the second quarter, and we haven't yet seen that translate into a big increase in off-hires for us just yet. Where we did in the -- financial crisis, we went from a situation of having strong demand in August of 2008 basically facing massive redeliveries in October and November of 2008 and saw a very quick translation of change in marketing conditions to change in our utilization. In the financial crisis, interestingly, we didn't really take any significant credit losses, I think, probably for a lot of the reasons I was just describing that we did see major customers do financial restructurings, but we typically repaid right through those and didn't take any big financial losses. In the industrial recession in 2015 and '16, again, we saw -- as economic and activity -- and trade activity slowed, we saw our utilization move down fairly readily. We also saw -- really the only major credit hit we've taken in our history, at least in the last 20 years, during that time when Hanjin went suddenly kind of chapter 7 style liquidation. Right now, we're curious to see what it's going to mean for us in terms of impact on our utilization. I think our customers are holding on to containers right now to some extent, waiting to see what kind of recovery and how long of a downturn we face. I think as John O'Callaghan mentioned, there's also a lot of operational disruption that our customers are having to deal with because of the way their vessel schedules have been disrupted with the blank sailings and the way containers are piling up in terminals and blocking efficient operations. And then we hear that cargo movers are hanging on to containers for a while to keep their cargoes in there because warehousing and other distribution is also backed up on the ground in the U.S. and Europe. So it's -- we don't really have a great road map. I think when we look at what could the impacts be, I think we look through the financial crisis, which is where we really saw trade volumes drop precipitously. In that crisis, we saw, I think, 3 quarters of weak demand before container supply reacted and adjusted down to where our trade volumes were, and then we saw a very quick recovery once we got into the latter half of 2009. But again, this is such unusual time. We're trying not to give too much of a prediction. -------------------------------------------------------------------------------- Michael C. Brown, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [6] -------------------------------------------------------------------------------- That's very helpful. Just one quick clarification. Does the second quarter guidance, does that include any assumption for elevated credit costs again? Or is that not included there, and too early to tell? -------------------------------------------------------------------------------- Brian M. Sondey, Triton International Limited - Chairman & CEO [7] -------------------------------------------------------------------------------- Yes. So we don't anticipate credit losses. Again, we haven't seen any other customers, other than the one we've mentioned, showing real signs of stress or cracks. And so we haven't forecast credit losses. I think the one thing, just from, I'd say, a modeling standpoint, I'd say, is that we did take that almost $4 million charge in the first quarter. But from an earnings standpoint, it was a little bit offset by we had some delayed recoveries on prior losses. I don't think those showed up in our credit line, but they, to some extent, offset the credit loss, I think, by $2 million to $3 million. So the net impact of the sort of onetime-ish kind of events was only a negative 1 or 2. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- Our next question will come from Larry Solow with CJS Securities. -------------------------------------------------------------------------------- Lawrence Scott Solow, CJS Securities, Inc. - MD [9] -------------------------------------------------------------------------------- Can you give us a little more color on the -- given the environment and the uncertainties, what's the rationale behind the $200 million or $190 million additional investment in new containers? Is that -- do you have a place to put those? Is that replacing some older ones in your fleet? Can you just give us a little more color on that? -------------------------------------------------------------------------------- Brian M. Sondey, Triton International Limited - Chairman & CEO [10] -------------------------------------------------------------------------------- Sure. So it represents a number of things. One, as John O'Callaghan mentioned, the refrigerated container market is not impacted by typically economic cycles or disruptions as dry containers. So we all want to get our food and so on. And so we've done a couple of large refrigerated container deals so far this year. In addition, we also just always watch our inventory. And earlier this year especially, we saw the possibility back in, I'd say, January and February that the trade volumes may increase in 2020, that, I think, turns out to be an optimistic view at the time. And so we are building some containers for inventory in anticipation of that. And then we also are generally talking with customers about trading deals and sale-leaseback transactions, and those are included in the investments as well. -------------------------------------------------------------------------------- Lawrence Scott Solow, CJS Securities, Inc. - MD [11] -------------------------------------------------------------------------------- Got it. Okay. So it's fair to say that perhaps some of that happened, as you said earlier, in the quarter when there was more optimism before sort of corona got going, I guess. -------------------------------------------------------------------------------- Brian M. Sondey, Triton International Limited - Chairman & CEO [12] -------------------------------------------------------------------------------- Yes. I'd say we look at our inventory of factory containers, and we're pretty happy where it is. -------------------------------------------------------------------------------- Lawrence Scott Solow, CJS Securities, Inc. - MD [13] -------------------------------------------------------------------------------- How about the pricing on containers? Obviously, as you mentioned last quarter on your Q4 call too, it's made a nice move up since the fall, even with a little bit of leveling lately -- more recently. I know it's hard to sort of get your crystal ball out. But clearly, things have gotten a little bit worse on the economic front. Is there a risk that price comes down again significantly, maybe it will take a little while because, I guess, sounds like COVID is sort of displacing and perhaps artificially inflating or alternate uses of these containers that -- say beyond COVID, if we're in like a couple of a year type of recession, how do you see things reacting in that type of scenario? -------------------------------------------------------------------------------- Brian M. Sondey, Triton International Limited - Chairman & CEO [14] -------------------------------------------------------------------------------- Sure. Well, there's no doubt if we're in that prolonged period of weak global economic activity and weak trade volumes that, that will have a negative impact on container prices. My personal prediction is I don't think they'll go down to the same level where they were in 2019, unless we see steel prices fall dramatically. In 2019, we always look at a number of things for container prices. But one of the things I always find most telling is looking at the margin that the manufacturers charge for containers over the cost of the steel input. And in 2019, it was at really extraordinarily low levels. And our understanding is because of that, that most of the container manufacturers were losing quite a bit of money. And the main thing that drove prices up this year wasn't necessarily incredibly bullish views of trade growth, it was more just the manufacturers rightsizing their shift capacity for the amount of production that there is right now or that there had been. And so they brought the margin back in the sort of normal range. But of course, if there's sort of a prolonged period of weak demand, margins tend to get pushed down to lower levels. But again, my personal prediction is I don't think we would see the margins getting back down to where they had been in 2019 just because the manufacturers seem quite determined to reduce and kind of right size their shift capacity. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- (Operator Instructions) Our next question will come from Ken Hoexter with Bank of America Merrill Lynch. -------------------------------------------------------------------------------- Kenneth Scott Hoexter, BofA Merrill Lynch, Research Division - MD and Co-Head of the Industrials [16] -------------------------------------------------------------------------------- Brian, any thoughts on the timing of contract expirations? Is there any lumpiness coming up over the next couple of months, quarters? -------------------------------------------------------------------------------- Brian M. Sondey, Triton International Limited - Chairman & CEO [17] -------------------------------------------------------------------------------- Yes. So for us, fortunately, our lease portfolio is in pretty good shape from an exploration standpoint. We put a chart into the back of the investor presentation on Page 16, looking at the -- for dry containers and refrigerated containers, the number of containers expiring off of lease that require repricing that are, say, less than sale age. And both are pretty small percentages of our portfolio for now and actually next couple of years. And so I think one of the reasons why we've seen utilization hanging very well and also we've seen average rates holding very well, both this quarter but as well as last year, is just the fact we don't really face a cliff for expirations. And I think we've talked in the past that one of the things that made the 2015, '16 period so challenging for us, in addition to the drop in trade due the industrial recession, was just at that point, we did face a big cliff of lease expirations. And in fact, they were very expensive leases. Fortunately, we just don't -- we don't face that situation now. -------------------------------------------------------------------------------- Kenneth Scott Hoexter, BofA Merrill Lynch, Research Division - MD and Co-Head of the Industrials [18] -------------------------------------------------------------------------------- So maybe, Brian, just taking a step further, if I look back in 2016, utilization fell to 93%. So not much farther than where you are now. In the great recession, I think it was in the upper 80s. What then has to happen to get there? Is that kind of this low activity has to go out for another year before you can see utilization given that -- to those levels given your contracts? I mean what kind of -- I mean it seems like you're still pretty solidly tied up on some of these long-term contracts, so there's no kind of lumpiness in that expiring date? -------------------------------------------------------------------------------- Brian M. Sondey, Triton International Limited - Chairman & CEO [19] -------------------------------------------------------------------------------- Yes. So we've done a lot of scenario modeling just to try to understand what would it take to hit different levels of stress. And I'd say it would take a dramatic increase in the level of off-hires for us to see a utilization decrease similar to what we saw certainly in the financial crisis. And even to get to, say, the same slope of utilization change where we were in 2015, '16, you'd have to see a very large percentage of containers on expired leases or on short-term leases coming back because, again, a lot of them are locked away. And so, I mean, certainly, I guess it's mathematically possible those things happen. But it would take a really sustained effort by our customers and a very negative view, I think, on longer-term expectations to see utilization be on that kind of negative slope. That said, the other thing that we could -- that could cause it too would just be some credit challenges. And so obviously, our long-term lease portfolio gives us great protection when customers live by the terms of the lease agreements. If we were to see more widespread customer problems where we were either ourselves taking actions to get the containers back or the customers weren't paying us, and so we took them off-hire, that could do it as well. But again, we haven't seen that across the portfolio. -------------------------------------------------------------------------------- Kenneth Scott Hoexter, BofA Merrill Lynch, Research Division - MD and Co-Head of the Industrials [20] -------------------------------------------------------------------------------- So maybe just help me understand that a bit. Given the past 2 downturns, is that because you're better structured post the Triton merger? Is it you think on that terms? Is it... -------------------------------------------------------------------------------- Brian M. Sondey, Triton International Limited - Chairman & CEO [21] -------------------------------------------------------------------------------- Yes. It's a couple of different things. So going back into the financial crisis, I think both companies, both TAL and Triton, 10 years ago, had larger percentages of short-term leases that was more the nature of the business. And I don't remember exactly what was happening with the lease portfolio at that time. But I think it was just a -- it was a higher turnover kind of business in terms of containers coming off and going back higher. In 2015 and '16, it was just really unfortunate timing that the market got more back from the financial crisis in 2010 and '11, and we -- both TAL and Triton did a tremendous amount of business in 2010 and '11 at very high container prices, very high lease rates. And just most of the container leases done at that time were 5-year deals. And so just by the rhythm of the calendar, they expired in 2015 and '16. And we were subject to a lot of return pressure and a lot of repricing pressure. I like to think we learned some lessons in life. And so in the very strong markets we had in 2017 and '18, well, fortunately, they're not 5 years yet, but we also, during those 2 years, took a lot of time to put a lot of emphasis on staggering the lease expirations, and a lot of deals we did were not just 5 years but also a lot of 7 years and 8 years, even some 10-year deals. At the same time, we've made an emphasis in our existing portfolio when we're renewing leases or putting older containers on hire and the focus on life cycle leases that keep the containers on hire to the end of their typical useful life. And so I think all those things together have just meant that we, I think not just now but likely at future periods as well, aren't going to have the same portion of our portfolio at risk. -------------------------------------------------------------------------------- Kenneth Scott Hoexter, BofA Merrill Lynch, Research Division - MD and Co-Head of the Industrials [22] -------------------------------------------------------------------------------- That's really helpful understanding that, that really shows a great maturity on the business. If the container prices are up now, what are your thoughts on pricing returns? So let me just phrase that for a second. It sounds like you thought that because of the, I guess, congestion in the system, you've got more box leases and, I guess, more on dry side than refrigerated. So if the supply chain then starts to move, do you see the reverse and where, when you would normally then start signing up, you may see some returns increasing when the economy accelerates? -------------------------------------------------------------------------------- Brian M. Sondey, Triton International Limited - Chairman & CEO [23] -------------------------------------------------------------------------------- Yes, so definitely, operational disruption can move around demand relative to underlying cargo. And so in periods of disruption, and this can be periods like now where the shipping lines are just having a hard time moving containers because of the unusual vessel schedule and terminal inefficiencies, we've also seen things like that around port strikes or other things like that, that can create its own container demand. And then when the disruptions get released, that can bring supply back to the market Outside of, say, production. And so it's something we keep our eye on. Typically, it takes a while, I'd say, the clear operational inefficiencies, especially during periods like now where vessel capacity is coming down and sailings are being missed. And so our general thought, and I guess we'll have to see if this is right, is that if we see a reasonably near-term rebound in activity in both economic and trade activity, that they're likely to be additive, that some of the disruptions are going to be difficult to clear. And we're seeing sort of an increased demand to bring containers into the systems of our customers. But at some point, as the disruptions are cleared, yes, there would be sort of kind of a negative factor on demand. But at least our thinking is, initially, it would probably be a double positive if we see a recovery in the second half. -------------------------------------------------------------------------------- Operator [24] -------------------------------------------------------------------------------- This concludes our question-and-answer session. I would like to turn the conference back over to Brian Sondey, CEO, for any closing remarks. -------------------------------------------------------------------------------- Brian M. Sondey, Triton International Limited - Chairman & CEO [25] -------------------------------------------------------------------------------- We'd just like to thank everyone for your continued support for Triton International, and we look forward to talking with you soon, and certainly hope everyone stays safe and healthy. Thank you very much. -------------------------------------------------------------------------------- Operator [26] -------------------------------------------------------------------------------- The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.