Press release·02/25/2025 08:27:17

Financial Performance Overview

The company’s operating and financial performance in the first quarter of 2024 was strong, despite the typically slow season for the container leasing industry. This was mostly due to increased demand driven by the Red Sea conflict, which caused supply chain disruptions and longer voyage times. This led to higher container pick-up and sales activity, as well as improved fleet utilization.

As of March 31, 2024, the net book value of the company’s revenue-earning assets was $10.3 billion, a decrease of 1.6% compared to the end of 2023 and 7.1% lower than a year earlier. The decrease was primarily due to higher equipment sales, partially offset by new equipment purchases in the first quarter of 2024. The company’s fleet size declined compared to the prior year due to limited procurement in 2023 amid slower market conditions.

The company’s utilization rate increased in the first quarter of 2024 compared to prior periods, averaging 97.7% versus 96.4% in the fourth quarter of 2023 and 97.6% in the first quarter of 2023. Ending utilization was 98.2%, up from 96.5% and 97.2% in the respective prior periods. This improvement was driven by higher pick-up activity and lower drop-off volumes.

Liquidity and Capital Resources

The company’s principal sources of liquidity are cash flows from operating activities, proceeds from equipment sales, borrowings under debt facilities, and other financing activities. Its main uses of cash include capital expenditures, debt service, and dividend payments.

For the 12 months ended March 31, 2024, cash provided by operating activities and equipment sales totaled $1.46 billion. As of the end of the first quarter, the company had $51.7 million in unrestricted cash and $1.95 billion in remaining borrowing capacity under its credit facilities.

The company’s cash commitments over the next 12 months include $953.6 million in scheduled debt principal payments and $243.2 million in committed but unpaid capital expenditures, primarily for new equipment purchases. Management believes that cash from operations, existing liquidity, equipment sale proceeds, and available credit will be sufficient to meet the company’s obligations over the next year and beyond.

Capital and Debt Activity

During the first quarter of 2024, the company paid $13.0 million in dividends on preference shares and a $200.0 million cash dividend to its parent company. It also paid $0.9 million in transaction costs related to the recent merger.

On April 3, 2024, the company issued $450.0 million in new securitization notes at a weighted average interest rate of 5.55% and an expected maturity of May 2034. The proceeds were used to pay down existing revolving credit facility debt.

The company also obtained standby letters of credit on its ABS facilities to satisfy restricted cash balance requirements, allowing it to release $38.3 million in restricted cash for general corporate purposes. Additionally, the company amended its $1.125 billion ABS warehouse facility to extend the conversion date to January 2027.

The company may seek to retire or purchase outstanding debt through various means, as market conditions and its liquidity permit.

Credit Ratings

The company maintains investment-grade corporate and long-term debt credit ratings from Fitch Ratings (BBB-) and S&P Global Ratings (BBB), which enable it to access attractively priced capital. A ratings downgrade could adversely affect the company’s ability to issue new debt or renew existing financing, and would increase its borrowing costs.

Debt Agreements

As of March 31, 2024, the company had $7.42 billion in total outstanding debt, net of unamortized costs and discounts. This included $2.66 billion in secured debt financings and $4.75 billion in unsecured debt.

Approximately 90% of the company’s total debt had either fixed interest rates or floating rates that were synthetically fixed through interest rate swaps. The maximum borrowing capacity across all facilities was $9.36 billion, though actual availability was limited to $1.07 billion due to borrowing base and unencumbered asset constraints.

The company was in compliance with all applicable debt covenants as of the end of the first quarter.

Cash Flow

For the three months ended March 31, 2024, net cash provided by operating activities was $257.5 million, down from $302.8 million in the same period of 2023. This decrease was primarily due to lower profitability and more net equipment purchases for resale compared to the prior year.

Net cash provided by investing activities was $15.2 million, down from $52.3 million, mainly due to higher purchases of leasing equipment. Net cash used in financing activities was $320.6 million, an improvement from $345.5 million, driven by increased debt borrowings partially offset by higher dividend payments.

Results of Operations

Total leasing revenues were $371.3 million for the first quarter of 2024, down from $397.7 million a year earlier. This 6.7% decrease was primarily attributable to a $21.4 million decline in per diem revenues due to a lower average on-hire fleet size and lower average lease rates. Finance lease revenues also decreased by $2.3 million.

Trading margin, representing the net profit from equipment sales, was $0.4 million compared to $1.1 million in the prior-year period, as container selling margins declined.

Gain on sale of equipment was $14.6 million, down from $15.5 million, due to lower average sale prices for used dry and refrigerated containers, partially offset by higher sales volume.

Operating expenses decreased by $6.1 million to $186.6 million, driven by a $12.4 million reduction in depreciation and amortization, partially offset by $5.5 million in transaction and other costs related to the merger.

Interest and debt expense increased by $2.6 million to $61.4 million, primarily due to higher average interest rates on the company’s unhedged variable-rate debt.

Income tax expense was $12.8 million, down slightly from $13.0 million in the prior-year period, as lower pre-tax income was partially offset by a higher effective tax rate.

Overall, net income attributable to the common shareholder was $112.5 million, down from $136.8 million a year earlier, mainly due to the decline in leasing revenues and higher operating expenses.

Outlook and Key Risks

The company’s strong liquidity position, access to capital markets, and diversified lease portfolio provide a solid foundation for navigating the current market environment. However, it faces several key risks that could impact future performance:

1. Interest Rate Risk: A significant portion of the company’s debt has variable interest rates, exposing it to the risk of higher borrowing costs if rates continue to rise. While the majority of debt is fixed or hedged, a 100-basis-point increase in unhedged rates could increase interest expense by $7.2 million over the next 12 months.

2. Utilization and Lease Rates: Maintaining high utilization and securing favorable lease rates will be critical, as changes in these factors can significantly impact revenue and profitability. Disruptions in global trade or supply chains could lead to lower demand and utilization.

3. Competitive Landscape: The container leasing industry is highly competitive, and the company faces the risk of losing market share or being forced to accept lower lease rates to retain customers.

4. Regulatory and Compliance: As an international company, the firm must navigate an evolving regulatory landscape, including changes to tax laws, environmental regulations, and other government policies that could increase costs or limit growth opportunities.

5. Merger Integration: The recent merger introduces integration risks that, if not managed effectively, could disrupt operations and hinder the realization of anticipated synergies.

Overall, the company’s strong market position, financial flexibility, and experienced management team position it well to navigate the current environment. However, vigilance will be required to mitigate the various risks and capitalize on opportunities in the container leasing industry.