Cai International, Inc. (CAP)

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CAI International, Inc. (CAP)

Q4 2008 Earnings Call Transcript

February 11, 2009 5:00 pm ET


John Nishibori – President and CEO

Victor Garcia – SVP and CFO


Brian Hogan – Piper Jaffray

Jason Arnold – RBC Capital Markets

David Long – William Blair

Rick Shane – Jefferies & Company

Chris Biles – CJB Capital Management



Good day and welcome to the CAI International Fourth Quarter 2008 Estimated Earnings Results Conference Call. Today’s conference is being recorded. At this time I would like to turn the conference over to John Nishibori. Please go ahead, sir.

John Nishibori

Thank you for calling in today to our conference call. I am John Nishibori, CEO of CAI International and with me is Victor Garcia, our Chief Financial Officer. Before we get started Victor is going to make some Safe Harbor statements and then I will discuss our quarter. Victor?

Victor Garcia

Good afternoon. Certain statements made during this conference call may be forward-looking and are made pursuant to the Safe Harbor Provisions of Section 21-E of the Securities Exchange Act of 1934 and involve risks and uncertainties that could cause actual results to differ materially from current expectations including, but not limited to, economic conditions, expected results, customer demand, increased competition, and others.

We refer you to the documents that CAI International has filed with the Securities and Exchange Commission including its annual report on Form 10-K, its quarterly reports filed on Form 10-Q and its reports on Form 8-K. These documents contain additional important factors that could cause actual results to differ from current expectations and from forward-looking statements contained in this conference call. John?

John Nishibori

We decided to schedule this call because of our concern with the decline in our share value that we did not expect nor think is warranted. We will use this opportunity to provide you with our best insight into our business and the status of the industry.

We are finalizing our year-end audit so we have not provided detailed figures. However I can confirm to you that we have had a very good quarter and finished the year strong.

During the last quarter we estimate that excluding the goodwill impairment charge, we earned $5.4 million to $5.7 million resulting in an expected full year profit of approximately $23 million and with the impairment charge a loss of approximately $27 million.

During the quarter, we sold portfolios to contain our investors and we use the proceeds to further improve our liquidity and balance sheet. At the end of the year, we have cash on hand of $28 million and committed bank lines of $72 million. Hence, we have ample resources for our investments in 2009.

During the quarter we recorded a $50.2 million goodwill impairment charge. We annually test for goodwill during the fourth quarter. Most of the time during this quarter, our shares traded at a significant discount the tangible book value. Though we as management and owners feel the share price is deeply undervalued and does not reflect the true value of our company we nonetheless need to take into consideration the trading level of our stock and the equity market environment in assessing our goodwill. As a result we concluded that it was appropriate under GAAP to impair the full value of our goodwill.

Though we have taken appropriate accounting steps, we ask investors when analyzing our company to not only consider the equity value that is invested in our fleet but also the 68% of the assets we operate are done so on behalf of third parties. That business mix allows us to earn fee revenue just as we did this quarter and to share operating risk with container investors. We believe the market is not giving us full credit for the combination of lower risks and free cash flow from fee income.

I will move now to the current status of the industry. Average utilization for the quarter was 91.9% and we expect utilizations will stabilize towards the end of the second quarter of 2009 as we entered a seasonally stronger part of the year. Turn-in activity is not uniform across our customer base and some of the activity does reflect the normal seasonality during the winter months that has been absent the last couple of years.

Customer credit remains a focus for us. However, we feel good about the credit profile of our customer base. We continually review our top customers and believe they are taking appropriate steps to manage through the difficult operating environment. Issues to shipping lines were facing in 2008 such as large order books, rising fuel costs and higher charter rates are now unwinding. Some ship order have been cancelled or delayed, thus reducing the financing needs for the industry, and some shipping lines are raising equity.

Bunker costs are now much lower and shipping lines have been aggressively allowing ship charters to expire. Though this is a very difficult time to be a ship charterer, for our customers in our ship charterer; for our customers in our industry, this is a necessary and healthy process to bring profitability and growth back to the shipping industry.

The container leasing industry did not experience the same dramatic increase in per diem rates that occurred with ship charters and as such there was not the same supply/demand imbalance that ship owners are now facing.

One of the other significant distinctions between the ship leasing industry and the container leasing industry is that the lead times for container orders are much shorter than for ships. As such, our competitors and we have the most part stopped ordering equipment. We in particular stopped ordering equipment last summer and have very limited equipment at the factories.

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