Triton International Limited (TRTN) Q1 2022 Earnings Call Transcript

Triton International Limited (TRTN)
Q1 2022 Earnings Call
May 03, 2022, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Triton International Limited first quarter 2022 earnings conference call. All participants will be in a listen-only mode. [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 Burns -- Chief Financial Officer

Thank you, Nathan. Good morning, and thank you for joining us on today's call. We are here to discuss Triton's first quarter 2022 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 head of global marketing and operations.

Before I turn the call over to Brian, I'd like to note that our prepared remarks will follow along with 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 and filed 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 measures to the most directly comparable GAAP financial measures are included in our earnings release and in the presentation. With these formalities out of the way, I'll now turn the call over to Brian.

Brian Sondey -- Chief Executive Officer

Thanks, John, and welcome to Triton International's first quarter 2022 earnings conference call. I'll start with Slide 3 of our presentation. Triton achieved another quarter of record performance in the first quarter of 2022. We generated $2.76 of adjusted net income per share, an increase of 3.4% from the fourth quarter and an increase of 45% from the first quarter of last year.

And we achieved an annualized return on equity of over 30%. Triton is carrying significant operational and financial strength into 2022. We have added over $4 billion of containers over the last two years and placed these containers onto high margin, long-duration leases. We've extended lease durations across our fleet and increased the share of our dry containers and lifecycle leases to almost 60%.

And we have achieved meaningful interest expense savings through aggressive refinancing activity and locked in these savings by focusing on fixed-rate long-duration debt. Market conditions remain constructive. Goods consumption remains high and our customers continue to face extensive operational disruptions that are slowing container return times. Container prices and market leasing rates are down from last year's peak but remain historically high.

Our customers have been more cautious about growing their container fleets so far this year after aggressively expanding last year. But drop-offs remain low and a number of customers have been active leasing for spot requirements. And again, at least rates that remain historically high. We continue to use our strong cash flow to drive shareholder value.

We repurchased 3.3 million shares or about 5% of our total. Since we shifted focus from aggressive fleet investment to share repurchases last fall. We are increasing our repurchase authorization back to $200 million and we announced a quarterly dividend of $0.65 per share. We have made durable enhancements to our business that we believe has locked in a higher level of performance.

We expect our adjusted net income per share will decrease slightly from the first of the second quarter, as disposal prices and gains moderate. But we also expect profitability and return on equity to remain very high throughout 2022 and into the longer term. I will now hand the call over to John O'Callaghan, our global head of marketing and operations.

John O'Callaghan -- Global Head of Marketing and Operations

Thank you, Brian. Turning to Page 4. Page 4 illustrates that goods consumption and logistical bottlenecks continue to drive container demand. Two charts on the left illustrate that consumption remains elevated in the US and the ratio of retail inventories relative to sales remains at low levels.

Charts on the right show that solid growth and trade growth are forecasted through 2022, which combined with logistical issues, will continue to absorb capacity. As the shipping lines continue to struggle with disruptions, those disruptions have been exacerbated by what has been happening in the major port areas in China. There is potential for further disruption on the West Coast as congestion ping pongs back and forth between Asia and the US. We are hearing from our customers that these bottlenecks will absorb a lot of capacity for some time and in an unpredictable way.

Page 5. Page 5 illustrates that freight rates on new and used container prices are down for the peaks of 2021, but still remain historically high. The chart to the left illustrates the transpacific and East-West spot freight rates relative to bunker costs. Freight rates also remain historically high due to the continued demand for cargo, while the logistical bottlenecks continue to absorb existing available capacity.

You can see the upper right [Inaudible] container has come down and are slightly below $3,000. In part due to the high volume produced through 2021, easing some of the shortage. On right chart illustrates that the sale price of used containers has come down some in the first quarter, but also remains historically high. Page 6.

Page 6 shows the high container production in 2021 has eased container shortages, but overall availability remains tight. The chart on the left shows the content of production, and although there's been reasonable math of building in the first quarter, it is well below last year's pace. While we do not believe the shipping lines view containers as strategic investments, they have placed a larger percentage of what buildings we have seen in the first quarter of 2022. The chart on the right container factory inventory and depot stocks.

While we have seen the amount of available container factory inventory increase as a percentage of the global fleet, it's actually lower than normal at 1.5%. The bottom right chart illustrates that there are next to no depot units available. Turn to Page 7. Page 7 shows that Triton's key operating metrics remain very strong.

On the upper right chart, you can see the first quarter pickups are down from last year, while still not positive as we came through the traditional slow season drop-offs to be very low, which is keeping utilization at maximum levels. Even though utilization is coming off a little bit, it's still exceptionally high and we remain well protected by lifecycle leases and long-term portfolios illustrated in the bottom right chart. The lower left bubble chart shows the pace of activity as customers have slowed the absorption of containers through what is a seasonally slow period. Customers remain cautious about additional container capacity after adding a lot last year, but they also see a market where trade volumes are still strong and they are still dealing with significant disruption due to continued logistical bottlenecks.

So are not dropping off any containers either as they wait and see how the market develops. We are still seeing a strong backdrop for us with high container prices, multiple demand drivers for containers, very limited drop-off volumes, and we have at the same time locked in most of our equipment. I'll now hand it to John Burns, our CFO.

John Burns -- Chief Financial Officer

Thank you, John. On Page 8, we have presented our consolidated financial results. Adjusted net income for the first quarter was $179.6 million or $2.76 per share, an increase of 3.4% from the fourth quarter and nearly 45% from the prior year's first quarter. These exceptional results represented an annualized return on equity of over 30%.

On Page 9, I'll discuss the drivers of our strong profitability. A strong first quarter performance reflects the enhancements we have made to our business over the last two years. Our first quarter revenue was flat from the fourth quarter, despite two less revenue days as we had a full quarter's benefit from the high volume of new containers on-hired in the fourth quarter and utilization remained at maximum levels. Revenue in the first quarter was up 20% over last year's first quarter.

Revenue growth was less than asset growth, largely due to the growth in the finance lease portion of our fleet and the way financed lease revenue is recognized. We expect our utilization, revenue, and fleet size to remain at very high levels in the second quarter. We expect the first half fleet investment to be roughly at replacement levels and therefore revenue-earning assets to hold steady. Average utilization will likely moderate slightly in the second quarter and we expect revenue to be up slightly due to one more billing day.

Interest expense decreased slightly in the first quarter, reflecting increased slightly in the first quarter, reflecting the fourth quarter increase in our average debt balance, due to the funding of the asset growth in the fourth quarter. Our effective interest rate held steady at 2.5% in line with the fourth quarter, but down 80 basis points from the first quarter of last year, reflecting the benefits of our active refinancing activity over the last two years. With over 87% of our debt portfolio being fixed-rate debt or swap to fix with a weighted average duration of over five years. The recent increase in interest rates will have a limited impact on our overall effective interest rate going forward.

We continue to generate exceptional levels of trading and disposal gains totaling $33.1 million for the first quarter, down only slightly from the fourth quarter. We expect these gains to remain high in the second quarter, though we expect them to continue to trend lower as disposal prices decrease. Since the end of the peak season last year, we have shifted our strong cash flows from aggressive container investment toward active share repurchases. Over that period, we have repurchased 3.3 million shares, including 1.7 million shares we purchased so far this year.

And in support of the share repurchase activity, we have once again increased our share repurchase authorization back up to $200 million. Page 10 highlights the exceptional growth in our leasing margin and the profitability generated last year and in the first quarter of this year, and that these high levels of earnings are durable. On the left, we show how we have leveraged the strong market conditions to rapidly expand our leasing margin. On the right, we show why this high level of performance is durable.

The top right graph shows the increase in the average remaining lease duration for containers on long-term and finance leases. As you can see that the remaining lease duration increased over 60 months on a CEU basis. And when we calculate this on a netbook value basis, capturing the high cost and high revenue of containers purchased last year, the remaining lease duration jumps to 79 months. And if we include the typical time, it takes a customer to return or build down containers once the lease expires, this adds roughly a year to both figures.

In addition to the long duration of our lease portfolio, the portion of the portfolio made up of these long-term leases has climbed to 88% from 82.5% at the end of 2020. On the bottom right, we show that we fund this long-term lease portfolio with a long duration, fixed-rate, or hedged to fixed-rate debt at very attractive interest rate levels as a result of our refinancing activities over the last two years. We expect this combination of an attractive long-term lease and debt portfolios will lock in a high level of leasing margins for years to come. I'll now return you to Brian for some additional comments.

Brian Sondey -- Chief Executive Officer

Thanks, John. Slide 11 summarizes the way we think about our equity cash flow and illustrates how this cash flow gives us a variety of powerful levers to drive shareholder value. The top grouping of numbers summarizes the cash flow power of our business. We are currently generating over $1.6 billion of cash flow before capital spending on an annualized basis.

And remember, the duration of these cash flows is substantial due to the strength of a long-term lease portfolio. We need to allocate a little more than half of this cash flow for replacement capital spending in order to maintain our fleet size as containers age out of service. This leaves us with around $715 million of steady-state cash flow. We currently pay a quarterly dividend of $0.65 per share, which represents about $170 million in annual dividends.

As a result, we have about $545 million of steady-state cash flow after our substantial regular dividend. The next set of numbers illustrates a few things that we can do with this $545 million. If we focused on capital investment, we could self-fund the equity needed for nearly 20% asset growth while keeping our leverage ratio constant. Alternatively, if we focused on share repurchases, we could repurchase about 14% of our shares at their current trading range.

If we wanted instead to focus on dividends, we could pay almost $8.50 per share on top of our regular dividend, bringing the total annual dividend to over $11 per share. We have typically pursued a mix of these options. Slide 12 looks at how Triton has created long-term value for shareholders. We have talked a lot recently, about our Triton has achieved exceptional performance over the last two years.

But Triton's strong performance stretches back a long time. Triton is the cost and capability leader in an attractive defendable market niche. And we have a long history of delivering solid growth, strong profitability, and above-market investment returns. The chart on the upper left looks at the long-term growth of our container fleet.

Over the last 17 years, we have grown our fleet 8% per year on a CEU basis and 10% per year on the basis of net book value. The chart on the upper right looks at our long-term cash flow before capital spending. You can see how our cash flow has increased as we have grown our fleet. You can also see the stability of our cash flow.

We generated strong cash flow even in very challenging years, like the 2009 Global Financial Crisis and 2015, '16 industrial and commodities recession. The chart on the lower left shows how we've used our strong cash flow to both reinvest in our business and regularly return cash to shareholders. An investor in TAL's 2005 IPO who purchased a business with an adjusted net book value of around $12 per share. That investor today would have a business with an adjusted net book value of $44 per share and they would have pocketed $30 per share in dividends along the way.

And as you can see in the lower right, that same investor would have earned an annualized return on investment of almost 14% per year, significantly outperforming the S&P 500. I'll finish the presentation with Slide 13. Triton is off to a strong start in 2022, and we have high expectations for our business. We achieved another record quarter of profitability in the first quarter.

We have made durable enhancements to our business, and are carrying significant operational and financial strength. Market conditions remain constructive. We expect our profitability and return on equity to remain strong throughout 2022 and into the longer term. And our strong cash flow gives us powerful levers to drive shareholder value across a wide range of market environments.

We will now open up the call for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question will come from Michael Brown with KBW. You may now go ahead.

Michael Brown -- Keefe, Bruyette and Woods -- Analyst

Great. Thank you, operator. Good morning, everyone.

Brian Sondey -- Chief Executive Officer

Good morning, Michael?

Michael Brown -- Keefe, Bruyette and Woods -- Analyst

So Brian and John, appreciate the comments on the bottlenecks and the challenges of the current operating environment. So we focus on the shutdown situation in China. What are your expectations? Or what are you hearing from customers in terms of when this could ease? And then, given the uniqueness of the situations, once such shutdowns are done, how could trade play out from there? Will they -- how will they catch up in terms of goods produced and play out from here? Will -- how will it normalize based on what your expectations are today?

Brian Sondey -- Chief Executive Officer

Yeah. So I think the first thing I'd say is it's just a very uncertain situation. That, of course, there are a lot of things that are just unknowable about how the COVID pandemic is going to progress and how that's going to impact certainly China right now and everywhere else. And, I just say the main thing we hear from customers is that the bottlenecks that were really plaguing the shipping industry and I think the economy for most of 2021 is still there.

And it's not just, the ports in China or previously the ports on the West Coast. It's a whole, a layer of factors going from port productivity to trucking capacity to warehousing efficiency. And now, of course, the shutdowns of some of the biggest ports in the world. And, typically what we see when we see disruption is that the same amount of goods want to flow.

And so when you see temporary disruptions, that means the peak periods when things are flowing well are higher. And that also tends to mean that shipping lines need more containers in their fleet, relative to the cargo that they're moving. And that's what we're seeing and have seen for the last 18 months or so. And, I don't think anyone really right now is brave enough to forecast just how it plays out.

But certainly, it's been and tends to be a big impact on the business.

Michael Brown -- Keefe, Bruyette and Woods -- Analyst

OK. Yeah, that's certainly fair. And then I just wanted to ask about the secondary market and the gain on sale trend that you mentioned here. So you talked about the fact that the gains are expected to tick down in the second quarter, at least as of what you know currently.

Is this just a reflection of the limited containers that you have available for sale? Or is this also an element of the gain on sale per container coming down more from here? Just trying to parse through what's kind of built into that expectation. And then I understand, there's a lot of uncertainty here. But if you think about the coming quarters or the trajectory from here for the rest of the year, is it possible that if a turn in starts to come in at the volume that you're able to sell could rise and that you could actually experience a bit of growth in that line. Again, I know it's maybe a little further out in the year, but just curious how you think about that as we get -- as we progress to the year?

Brian Sondey -- Chief Executive Officer

Yeah, sure. So, we've been saying now for probably three or four quarters that, our gain on sale and disposal prices have to come down. And, really the main driver behind those comments is just that they're, so extraordinarily high. We have some charts in the presentation that they look at used 20-foot and 40-foot IQ container prices over time.

And you can see that they reached, really unprecedented levels in 2021, driven by the high cost of new containers and just the overall shortage of containers, which choked off containers to the leasing and sale markets.  And so where we're seeing we are seeing price starting to come down just because, like we've seen many other, freight rates and new container prices, hit peak levels in 2021 and start to come off as the market -- just can't stay at that level forever. And so it's just -- it is a little hard to say, what's the pace of the container prices coming down? And we've seen some of it already. We expect to see that happen more. But, that said, we expect prices to remain very high.

And you're right, as volume increases that we start to see more off hires, some of which is pressuring price. That also does lead to higher volumes in our volumes right now, historically very low. And so, we don't -- we're not trying to give the impression that we're going to toggle very quickly back to where sale gains had been in 2019, for example. But we do think that we'll continue to see some decrease in sale prices following the decreases.

We've seen new building prices and following just the kind of the easing of the extreme container shortage that we saw in 2021, even though containers still remain pretty tight.

Michael Brown -- Keefe, Bruyette and Woods -- Analyst

Great. If I could just sneak in one more here on valuation. I was just taking a look at your historical PE multiple and just going back to 2020. For example, your PE at that time was closer to the mid sevens and it's like 7.4, which I would argue is still probably a pretty low valuation multiple for your business.

And then since then, the consensus estimates for 2022 are up over 60%. And I mean, you're putting a borrow is north of 30%. You've structurally, real changes and improved the business model, and produce some really strong growth in the earning assets. Yet you're now trading at less than six times.

And I understand that the macro landscape is certainly challenging. But, as you think about your business here, can you just touch on how you're feeling about the outlook for Triton and the prospects for the business and maybe just touch on the valuation and how you're how you guys are thinking about that and what the market could be missing here?

Brian Sondey -- Chief Executive Officer

Yeah, sure. And so obviously it's something we have taken note of. And, I think people who have spoken with us would know that's something that's been a source of frustration for us. And I appreciate that.

It's a source of frustration for our investors. Yeah, right. I mean, we traded a very low PE multiple right now, despite what we think is a very strong business right now in a business that's created a tremendous amount of value consistently over time. As to why we trade, where we do in terms of our multiple.

That's the question I think more for you and for the market. We've been trying to communicate the structural improvements that we've made to our business through our lease portfolio and refinancing activity. The shift that's occurred over the last, really five or seven years that have boosted our relative strength through our merger and really created significant capability and cost gaps between us and our competitors, as well as just the structural things that have improved in the industry around credit and the real focus on leasing for most of our customers. We look out to the future and we've tried to be pretty clear in our commentary here and in prior meetings that we believe this -- we've really jumped to a new level of profitability going forward because of the permanent -- not permanent, but the very long duration improvements that we've been able to make in our business over the last two years.

And hopefully, the market will start to see that. And, we've built out a lot of our investor materials to show especially like at our Investor Day, the run-off of the value of our lease portfolio as we look at it, and other things that we think support a strong value for the business. Hopefully, as we continue to show strong numbers and through a market that's still very good but not quite as extraordinary as last year, that that story will gain traction. But it's a question for you as well as for us, I think.

Michael Brown -- Keefe, Bruyette and Woods -- Analyst

Very fair. Yeah. Thanks. Thanks for all the thoughts there, Brian.

Operator

Our next question will come from Liam Burke with B. Riley FBR. You may now go ahead.

Liam Burke -- B. Riley Financial -- Analyst

Thank you. Good morning, Brian. Good morning, John.

Brian Sondey -- Chief Executive Officer

Good morning.

Liam Burke -- B. Riley Financial -- Analyst

Brian, your lifecycle leases are up to 60%. We're seeing obviously investment this year normalizing from last year's peaks. Do you expect that trend to markedly continue?

Brian Sondey -- Chief Executive Officer

We'll see. I mean, interestingly, a lot of the increase and probably all of it almost of the increase in containers on lifecycle leases are not driven by our new container investment. Most new containers, even if they're going on 10-plus-year leases, aren't full life leases, although some of them that we did last year are. But most of that increase in that share of lifecycle leases certainly over the last five years has come from what we're doing with our used containers.

And in fact, the typical rhythm for us has become to lease the container out, as the first lease for a pretty long time, but something less than the full life. And then if it comes off higher, or if we renew it with the same customer to try to put it on a lease for a second structure that'll carry it to the end. And so, I mean, 60% is a lot. Yeah.

Like I can't promise it's going to go up too much further from there, just given the mix of containers in our fleet in terms of the ages. But we do think it's something that's become a feature of the business and certainly a feature of how we work with our customers that we think that number is going to stay pretty high.

Liam Burke -- B. Riley Financial -- Analyst

Great. And on those renewal rates, are they the same higher, or lower when you extend that used container to the full lifecycle?

Brian Sondey -- Chief Executive Officer

Yeah. So I mean right now the market rate for new containers and for used leased containers that were leasing out currently are significantly higher than the average rates in our portfolio and also higher than the rates on leases that are expiring over the next four or five years. And so generally there's a tailwind as we're renewing those leases. That tailwind gets reflected in different ways.

Sometimes we see reflected in higher rates than we do. And we have pushed up a lot of rates over the last 12 months. As we reached the end of this and typically customers can hold on to containers for a while after the lease expires, usually 12 months or so. And so we have to wait till then before we can really kind of force a renewal increase.

But we've been doing that sometimes, though, that that kind of strength in the market, we reflect more on duration and we're always doing -- it's actually quite easy on these on these lifecycle leases that sort of understanding the trade-off of rate and duration because at the last lease. And so if we can get the customer to keep it until year 16 or in some cases even year 17 or longer, that actually has a lot of value, perhaps more valuable than raising rates on a contract that expires when it's 13 or 14. And so we think of it in different ways, but we have been able to capture that value for sure over the last 12 months or so.

Liam Burke -- B. Riley Financial -- Analyst

Great. And your ROE is north of 30%, obviously, that's not something that you can carry and sustainable. But as the business normalizes, congestion eases, and traffic gets to normal, would you expect the ROE to settle in at a rate higher than your historical levels?

Brian Sondey -- Chief Executive Officer

So for sure, I think both things you say are right. And the way that we think about it that first, we do think the ROE will come down. We don't think we're writing business always at 30% plus. That reflects very good business that we've written plus extremely high utilization.

And as I talked with Michael earlier, just, really unprecedented sale prices. In particular, as the sale prices come down, we'll start to see that ROE will come down, we think our utilization, in fact, is going to stay quite high. At least into the foreseeable future. And so, yeah, you're right, I think we'll see utilization come down somewhat, but we'll also see it be at a higher range than where it was before the last few years.

Reflecting again, these things we've been talking about are these durable improvements to our lease portfolio, the sort of massive investments in these high-value, high margin containers and leases over the last few years. And again, there's just really great refinancing activity and financing cost that we've locked in.

Liam Burke -- B. Riley Financial -- Analyst

Sure. Thank you, Brian.

Operator

Our next question will come from Ken Hoexter with Bank of America. You may now go ahead.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Hey, great. Good morning, Brian, John, and John. So I guess it's incredible what you've done the last few years and all the credit for that, but you're now targeting earnings to roll over. And I think it's been maybe seven or eight quarters since we've heard you kind of talk about a sequential decline.

So maybe just talk about that for a second. What are the terms for the current boxes last year -- or I guess through the last couple of quarters, you talked about up to 13 years. I think you just mentioned, that you just threw out a 10-year time frame. Is that what you're looking at now from shippers? Is it now 10 years and maybe talk a little bit about the lease rates within that.

Is there anything different in terms of where pricing is now versus where it was?

Brian Sondey -- Chief Executive Officer

Yeah. So we put some charts into our presentation looking at what's happened with container prices and that's pretty similar to what's happened, with market leasing rates. As we've seen, the market comes from really unprecedented, shortages of containers to just tight. The premiums that the factories can charge for getting access to their capacity have come down.

And that's reflected in lower market leasing rates. But I think it all depends on the perspective you're measuring against. And so, container prices and market leasing rates are lower than they were, in July 2021, which was a condition we've never seen before. But if you compare it back over my career, which now I think stretches back like 23 years with this company, I had never seen container prices at where they are today until 2021.

And so container price is not reflected in market leasing rates as well. I mean, 20-something year highs with the exception of last year. And so we look at the market, we say, boy, this is actually a pretty nice market. And if you had transported us from 2015 to here, it would be this is unbelievable, but obviously, compared to just really unprecedented shortage conditions last year at unprecedented pricing, it's down a little bit from that.

In terms of our earnings, I tell you, overall, we were very optimistic, on our financial performance over the rest of this year and into the longer term is something we've -- I think, probably repeated a few times. And, I guess, yes, we did guide that. We think our second quarter will be slightly lower than the first quarter, mainly, again, as these sale prices start to come a little bit back toward earth. But, we're still going to be -- we think, at levels of profitability that are really quite exceptional with very high profitability relative to our history, very high returns on equity.

And getting maybe back to Michael's question early on, the very low multiples relative to our share price. And so, we keep trying to say we think it's not a question of the trajectory of the earnings and where are they, and how they relate, to the value of the business. And, again, we think they're going to stay if, the way we the things we've done to our business are durable like we expect. We think earnings are going to stay very high in absolute terms and very high relative to the current value of the business, which frankly, is one reason why we've been buying the shares.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

No, no, I understand that. But I just want to understand what's changed. So, you used to put it in the release or in the charts. What was the term for new boxes it fluctuated from?

Brian Sondey -- Chief Executive Officer

Sure.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

What's the time frame for new boxes?

Brian Sondey -- Chief Executive Officer

Yeah. So let's say most of the deals we're doing right now are in the 10-year duration and it's down a little bit from, most of 2021 was more kind of like 12 or 13. But I think that really just reflects the container prices coming back down to earth a little bit. That we container prices are, again, still very high, but no longer at close to $4,000.

It's easier to spread the premium than it was before. And so, but again, we look at there's been no other year in my history where we've done 10-year leases as the norm. And so, again, we still look at it and say it's a pretty attractive lease out environment, even if, not quite as strong as 2021.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

So then the returns on these boxes, are they the same Brian? Or I get it right if you can distribute it in a short period of time, or I guess the lease rate return level's similar given that --

Brian Sondey -- Chief Executive Officer

I mean, again, I think they're strong. They have to say the same things as before that, the returns are probably getting a little bit down from the levels we got in 2021. I mean, there were certainly a few quarters there, where, we were more, capped by relationship reasons, than able to get the deals done, just because the boxes were needed so badly by our customers and the customers of our customers. Now it's much more of a regular market, where multiple leasing companies can supply containers to the inquiries that are out there.

But again, pricing is reasonable, and again, reflects, a relatively tight market for containers and just the strength of our business.  We don't really feel we have to reach for things. But certainly, again, I would just characterize it as we think the market is constructive. It does a lot of things that are positive for us, especially the container prices and leasing rates and that tightness of container supply, but not quite as extraordinary as 2021.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Yeah. And I guess just to understand the sustainability rate, I mean you still have very little -- I don't know if you had one of the charts up that you've had before, right, where you have just very little coming due in this year, next year. Is there a chart that highlights it?

Brian Sondey -- Chief Executive Officer

There is, Ken. There's -- we put it in the appendix of it actually should be in the present. Yeah, it's Page 15 in the chart. We didn't put it in the -- It hasn't been there in a few quarters just because it's not that much of a story to it that when you look at the expirations relative to the fleet, that's a pretty small percentage of our fleet that does expire over the next few years.

And for the dry containers, the market leasing rate that's what I was talking about earlier is significantly above the rates of the leases that are expiring. I mean, generally, it's a good new story and I think we kind of replaced it a little bit in the main presentation, with the things that John Burns talked about, just a very high percentage of our containers on long term lease and the long duration of those leases. And this chart kind of falls out from that. But, yeah, we still think people do like to see it and it's in there.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Yeah. No, I think that's a great chart just to highlight that there's not much really coming due. Just to clean up questions if I can. One, you noted the buyback was 1.7 million shares up to April 29th.

Is there a quarterly number? I think on the cash flow, I got 81 million instead of 110. Is there a share number there for the quarter?

Brian Sondey -- Chief Executive Officer

Yeah, there is. John is flipping through and now. It shows in the Q. And frankly, it's funny, we were debating what numbers are most useful for investors to put in there.

And initially, we had like all four numbers. Like what have we done since September? What's a year-to-date, and what's the first quarter? But yeah, we can -- John quickly scrambled for that. But it's --

John Burns -- Chief Financial Officer

1.3.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

1.3. Perfect. Thanks. Sorry for the technical one.

John Burns -- Chief Financial Officer

No, no, no.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Just so I understand, John, you said something interesting at the beginning of the conversation. I just want to make sure I understood it. The balance sheet assets -- asset base declined sequentially. Right.

So if I look at net assets, gross assets, but you said something that is that due to the larger lease use, or is that something different? I just want to understand what you were you were throwing out there?

John Burns -- Chief Financial Officer

Well, what I was saying is that we think, for the first half of the year, adding on the second quarter, and based on what we've already to date, we're probably at replacement levels. So on a full-year basis, at the end of the second year, we think we'll be roughly flat on a revenue-earning asset basis. The actual acceptances through the end of the first quarter were lower than what we've -- half of what we ordered was on the low end. So we've got more containers coming in.

We think we'll be flat on an overall asset base for the first half of the year.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

So to keep it flat, you have to accelerate capex?

John Burns -- Chief Financial Officer

The orders have been made and we have -- we think more orders coming. So it is just the acceptance slowly the actual units coming into the fleet were lower than the orders placed if you will.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Hey, that's all we can expect.

John Burns -- Chief Financial Officer

Just the way to think of it Ken is -- yeah, that I think we've been we announced in the press release that we had ordered something like $425 million or so of capex year-to-date. Most of that capex should be delivered by June 30th and probably a little bit, on top of that. And we've shown in the chart that our replacement capital spending is about $900 million per year. So if you think about roughly $450 being where we are for the first half.

That's right at kind of the replacement level. But just given the timing of our orders and timing of delivery, more of that $400 and change is going to be delivered in the second quarter than the first quarter, which is why you saw a slight decrease sequentially from December 31 to March 31 and then probably a slight increase sequentially from March 31 to June 30, making the December 31 to June 30 relatively flat.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Got it. Got it. That's helpful. Just want to make sure I wasn't missing something.

Thank you very much for the time, guys. Appreciate it.

John Burns -- Chief Financial Officer

Yeah. Thanks, Ken.

Brian Sondey -- Chief Executive Officer

Thanks, Ken.

Operator

[Operator instructions] Our next question will come from Jon Tanwanting with CJS Securities. You may now go ahead.

Larry Solow -- CJS Securities -- Analyst

Hi, it's actually Larry Solow, anyhow you got that name. But that's great. That works. Anyhow, good morning, guys, just he is one of my colleagues.

I'm going to have to go with him. But just a couple of follow-ups there. Just on the earnings outlook. I know you only gave a one-quarter outlook and not to define what a modest decline means.

So it doesn't sound like your earnings are, quote-unquote, "rolling over". But can you just -- worst-case scenario, obviously, it seems like, not the worst-case scenario, but a sort of a negative look to me seems like it can't get to -- you can't fall too much over the next couple of years. If I just look at you only have it looks like 5% or so of your containers coming off contract in the next couple of years. So and obviously we seem to be in a holding pattern today, shippers don't know, kind of know where the direction we're going to go.

So no one's dropping off so fast. So in the meantime, you're earning great, returns and you're buying back shares. And it sounds like that will continue in the short run. Then you just replace your containers just at a minimum and use your cash flow for buybacks until we sort of get a better direction.

Is that a fair way to look at it? And even if things get really bad, there aren't that many containers that are coming off contract, right? So just trying to assess, I think the market perception is just that we're going to head into a recession and demand is going to fall out of bed. But even if that happens, it doesn't seem like you guys are there's a tremendous risk for you.

Brian Sondey -- Chief Executive Officer

Sure. So when we talk publicly, we do like to limit it to one quarter.

Larry Solow -- CJS Securities -- Analyst

Right.

Brian Sondey -- Chief Executive Officer

We find that it's maybe just risky for us to put too much out there. But we also do try to give help people think about, how to expect, general trends in the business to play out. And we do a lot of scenario modeling internally. We have a forecasting model that's built up from a lease level.

And we then, turn that, into a long-term financial forecast. And our general view is that it's going to be -- our utilization is going to be extremely resilient against market conditions because of the long duration of the portfolio. And so, again, these are financial models and they're subject to the assumptions we make. But our general view is that even if market conditions were to turn -- assuming negative, which in fact, we don't really think, that we're going to see utilization stay at historically high levels, into the past 2022, I mean, well into the medium term and beyond perhaps.

Larry Solow -- CJS Securities -- Analyst

Right.

Brian Sondey -- Chief Executive Officer

And that typically is the most important driver of our earnings, is just what percentage of containers run higher generating revenue, not accumulating costs. And they're not just on their own lease a lot of containers are on very profitable leases. And again, that sustains our profitability well beyond this year as well. That is the greatest uncertainty and I think that the part of our income statement, most subject to market conditions, is our gains on sales.

Larry Solow -- CJS Securities -- Analyst

Right.

Brian Sondey -- Chief Executive Officer

We have talked about that. We do expect those to normalize just as prices come back to earth. Again, there'll be some of that as volumes tick up there. But then offsetting that, that sort of negative pressure should be, as you mentioned, the decreasing share count and also growth over time.

We think that -- again, from the longer-term charts, we showed indicate that we don't need great market conditions to drive value in this business.

Larry Solow -- CJS Securities -- Analyst

Right.

Brian Sondey -- Chief Executive Officer

We grow across a wide range of conditions and create value across the same wide range of conditions. So so again, we look at and we feel we're in a really great place. We had a historic run over the last 21 months that allowed us to build a lot of long-term value. The market out there still remains underpinned by two very strong demand drivers, high goods consumption and logistical bottlenecks.

I'm putting that together. We've actually got a pretty optimistic outlook of where we go from here.

Larry Solow -- CJS Securities -- Analyst

What about in terms of inflation? Obviously, most of that inflationary pressures of obviously too much help to you, In terms of pricing your interest rates are mostly fixed now. So that's not hurting you. What about in terms of direct cost, is it an inflationary period? Does it -- I can't imagine the cost of the store, a container, or a pair of containers goes up as much as overall inflation or does it? So are you at risk as these things come as direct costs and you potentially rise as capacity utilization falls a little bit? Do you have a higher risk for higher costs this time around in a higher inflationary period than, say, a few years ago? Or not really?

Brian Sondey -- Chief Executive Officer

Yeah. I'd say in general, we think inflation is value-creating for the business mainly driven by the fact that we have lots of real assets and containers that we remarket to release them or we remarket them to end to sell on those values, certainly are very correlated with inflation. Those containers are financed primarily with nominal debt, with fixed interest rates. And so the value of our liability doesn't change very much as inflation goes up.

The value of our assets does. And that's sort of the main reason why we think inflation creates value for us and for our shareholders. I think there are inflationary impacts on direct operating expenses like repairs and storage but those are -- they can be significant in terms of the year-to-year changes, but it's still a relatively small share of our expense base. I mean, the vast majority of our expenses are ownership costs of container depreciation and interest expense.

And again, the depreciation, of course, is fixed because we've purchased the containers for a historical number, and interest expense, again, is locked in very well through our -- through our debt portfolio and hedging. So again, we feel that overall, it's a net positive.

Larry Solow -- CJS Securities -- Analyst

And just last question. What do you make -- if anything, I know it's sort of a very short time period. In the last couple of years, most of the container purchases have certainly been biased toward the leasing companies themselves. The last couple of quarters, or at least this year, your day looks like the shippers have been buying a larger percentage.

And I realize it's a small number in a short time period. But do you make anything of that? And maybe just their balance sheets have improved their short term, so they're using some of their cash. Any thoughts on that?

Brian Sondey -- Chief Executive Officer

Yes. For sure. So I think it's it's a number of things happening. For sure, the shipping lines of radically improve their capital structures over the last year and a half.

And frankly, most are carrying substantial net cash balances right now.

Larry Solow -- CJS Securities -- Analyst

Right.

Brian Sondey -- Chief Executive Officer

And so when you have lots of extra cash and a lot of shipping lines that pay down the debt that's pre-payable easily. Can you still hear us operator?

John O'Callaghan -- Global Head of Marketing and Operations

Nathan? Or, anyone?

Operator

Yeah, that's actually the main speaker line playing the music.

Brian Sondey -- Chief Executive Officer

OK.

Operator

Let's see.

Brian Sondey -- Chief Executive Officer

We'll carry on perhaps over the nice music here for us.

Operator

Wait. I think that actually might be John's line. Let's see here.

Brian Sondey -- Chief Executive Officer

Yes, why don't you just try to cut it off, if you can?

Operator

Yes, that was from John's line.

Brian Sondey -- Chief Executive Officer

OK. Yeah. Thank you. Yeah.

Sorry for the interruption, everyone. Oh, my gosh. Where were we? Yes. Sorry.

Thanks for reminding me, we're talking about the mix of shipping line purchases versus leaseco purchases. And so we're saying there's a number of factors driving it. One being that, the shipping lines are carrying a lot of cash because of their very strong profitability over the last few years, I think. And that is driving an increase in purchasing.

Also, the shipping lines do tend to do most of their buying early in the year. Unlike us, the shipping lines set typically annual budgets for buying containers and they typically do that purchasing ahead of the peak season, which starts to kind of get going in the second quarter. And so we often do see this, higher buying for shipping lines, as you get toward the first part of the year. And then I think there's also just a little bit of sort of price uncertainty for leasing companies.

We think of our container purchases as investments and we want to make sure that we can lease them out for rates that match the investments that we're making. With the shipping lines, I think to look at the containers as more of just something you need to have run your business. And as the price has been changing and leasing, companies are trying to be strategic about when to jump in. We have been coming in selectively to maintain our capability to supply.

But I think that also when prices are changing, leasing companies can be a little more cautious in their shipping lines. Operator, are you there?

Operator

Yes. So that will conclude our question and answer session. I'd like to turn the conference back over to Brian Sondey, CEO, for any closing remarks.

Brian Sondey -- Chief Executive Officer

Yeah. I just like to thank everyone for your interest in Triton and your support. Apologize, a little bit for our technical challenges there at the end, but we'll be looking forward to talking with you soon. Thank you.

Operator

[Operator signoff]

Duration: 54 minutes

Call participants:

John Burns -- Chief Financial Officer

Brian Sondey -- Chief Executive Officer

John O'Callaghan -- Global Head of Marketing and Operations

Michael Brown -- Keefe, Bruyette and Woods -- Analyst

Liam Burke -- B. Riley Financial -- Analyst

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Larry Solow -- CJS Securities -- Analyst

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