Cai International, Inc. (CAP)

CAP 
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CAI International Inc. (CAP)

Q2 2009 Earnings Call

August 4, 2009 5:00 pm ET

Executives

Victor Garcia - CFO

John Nishibori - President & CEO

Analysts

Rick Shane - Jefferies

Bob Napoli - Piper Jaffray

David Long - William Blair

Presentation

Operator

Welcome to the CAI International Second Quarter 2009 Earnings Call. Today’s conference is being recorded. Again with that I would like to turn it over to the Chief Financial Officer, Victor Garcia. Please go ahead.

Victor Garcia

Good afternoon and thank you for joining us for CAI International second quarter 2009 earnings call. Please note that today’s call is being recorded and will be available for 30 days on the Investor Relations portion of our website, www.caiintl.com. There will be an opportunity for you to ask questions at the end of today’s presentation.

Certain statements made during this conference call maybe 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, 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.

I would now like to turn it over to John Nishibori, the President and Chief Executive Officer of CAI International.

John Nishibori

The first half of this year has been a challenging period of time in terms of world economic growth and containerized trade. With this backdrop in mind, we are pleased with our results for the second quarter. Although both revenue and net income were lower this quarter than the comparable quarter last year, we remain solidly profitable.

For the quarter, we reported revenue of $16.7 million and net income of $3.3 million, or $0.19 per share. Throughout the second quarter we have been focused on managing the utilization level, while remaining vigilant on mitigating credit risk.

Utilization has continued to decline in the second quarter, and for the quarter averaged 81.2%, a decline of 4.3% from the average utilization in the first quarter. We have noticed that most of the decline occurred in the first two months of the quarter, and the rate of decline began to slow, as the quarter finished. We have seen stabilization trend continuing into July.

Part of this effect we are witnessing is seasonal, since we are now entering the seasonally stronger period of the year. However, most of the lease out activity during the second quarter was from intra-Asia's carriers. Many of the Asian regional carriers are benefiting from the Chinese stimulus package put in place earlier in the year. More recently, we have begun seeing more increase from the major shipping lines, where equipment needs, that we believe relates to the longer haul Asia to US and Asia to Europe routes.

Inventory levels in certain Asian ports such as Hong Kong have begun to decline. The level of improvement to-date is moderate and we believe we still need more significant economic recovery in Europe and the United States to observe a more pronounced rebound in the utilization.

As I mentioned earlier, we are also very focused on credit risk. We believe we have sufficient diversity in our customer base and mix of owned and managed business to effectively manage through the downturn.

During the past quarter many of the shipping lines have announced recapitalization plans that will allow them to better manage the cyclical downturn. Further, many of the shipping lines have continued to release charter in vessels to make room for some of the ship deliveries they are going to receive in the shipyards.

Many shipping lines have told us that their container cargo volumes have improved in the second quarter, but they are still dealing with very low freight rate. In order to improve profitability a number of shipping lines have announced rate increases that will go into effect in August. The announced recapitalization efforts and freight rate increases are positive factors to the financial health of the container ship requirement.

On the container supply side, we are pleased that there are no significant volumes of containers being ordered or manufactured. There has been some ordering of refrigerated containers and we ourselves have bought 500 reefer containers that are on long-term lease with one of top customers.

Our investment commitment during the quarter has been limited to the 500 reefer units and we are utilizing the cash flow we have been generating to reduce debt. Since the beginning of this downturn in our business, which now dates back to almost a year, we have continue to improve the financial position of our company by strengthening our balance sheet and liquidity and improve the asset profile of our fleet by selling off our older units and minimizing our factory inventory.

Thus the container factories are not manufacturing new containers, any significant play we believe the container leasing industry will be one of the early beneficiaries of the continued improvement and demand for containerized cargo. Our company has an attractive fleet in terms of condition and age and we have the balance sheet position to take full advantage of what we believe is a coming upturn in our business.

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