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CAI International, Inc. (CAP)

Q2 2010 Earnings Call Transcript

August 3, 2010 5:00 pm ET


Victor Garcia – CFO and SVP

John Nishibori – President and CEO


Bob Napoli – Piper Jaffray

Sameer Gokhale – Keefe, Bruyette & Woods



Good day, ladies and gentlemen, and welcome to the CAI International second quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator instructions)

As a reminder, this conference call is being recorded. I would like to introduce your host for today’s conference, Mr. Victor Garcia, Chief Financial Officer. Sir, you may begin.

Victor Garcia

Thank you. Good afternoon and thank you for joining us today. Certain statements made during this conference call may be forward looking and are made pursuant to the Safe Harbor Provisions of Section 21E 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, utilization rates, economic conditions, customer demand, increased competition, container investment plans and others.

We refer you to the documents that CAI International has filed with the Securities and Exchange Commission, including its report on Form 10-K, its quarterly reports 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 introduce John Nishibori, our President and Chief Executive Officer. John, please go ahead.

John Nishibori

Thank you. Welcome to CAI’s 2010 second quarter earnings conference call. The market demand for our services remains very strong and we continue to benefit from this demand through increasing utilization of our fleet.

During the second quarter of 2010, our utilization increased 8.8 percentage points to 95.1% from the first quarter average utilization. Utilization increased further in July to 97.5% at the end of the month, which is effectively close to full utilization.

Considering the level of demand, our marketing team is focused on ways of improving the return we have on our existing assets and on new investment opportunities.

The second quarter of 2010, we reported earnings per share of $0.31, an increase of 63% from the $0.19 per share during the second quarter of 2009, and an 82% increase when compared to the first quarter of 2010. Our improving results and the high utilization is largely due to the improved containerized trade growth.

Since September of 2009, Clarkson Research has increased its outlook for containerized trade growth in 2010. In its July issue of Containerized Intelligence Monthly, Clarkson Research forecasts that containerized trade growth will be 10.9% in 2010, and 10.7% in 2011. We believe that Clarkson and many of our customers underestimated the level of containerized trade growth for this year, and thus containers quickly have become short on supply.

The current outlook for trade growth in 2010 and 2011 is in line with historical growth rates and indicates continued strong demand for containers over the course of this year and next. Beyond overall trade growth, we believe that shipping lines are looking to leasing companies for a greater percentage of their container needs as they focus on improving their financial flexibility and seek financing for their ship delivery needs.

Because of the strong demand, we are increasing our expected investment level for 2010 to approximately $200 million and we would expect those assets to be largely committed on long-term leases prior to delivery.

The high demand and improving utilization have meant that lease rates for equipment being newly leased have increased materially and are above the historical average, both for newer and older equipment, improving overall yield on our assets.

Our container rental revenue of $14 million during the second quarter has increased by 13% over the same figure during the first quarter of 2010, and we expect continued sequential revenue improvement as we purchase additional containers and operate it in a highly utilization environment.

Secondary prices of containers have also increased over the past three months due to the shortage of containers worldwide, resulting in our gain on disposition of containers increasing 76% to $2.5 million compared to $1.4 million in the first quarter. Gain on disposition increased despite a decrease in two TEUs sold in the second quarter as compared to the first quarter of 2010.

During this quarter, we sold approximately 7,500 TEUs of containers to investors in Asia with our subsidiary CAIJ acting as the arranger of the fund. Our personal in Asia have been actively developing the investor base for container funds in that region and we expect future sales being generated by our team.

We also continued to talk to container arrangers in Europe. Based on the improving outlook for container shipping lines and returns for container investment programs, we expect European investors to consider container funds in the coming months.

Victor Garcia, our CFO, will now go over the actual results for the quarter.

Victor Garcia

Good afternoon. Earlier today, we reported 2010 second quarter net income of $5.7 million, or $0.31 per fully diluted share on an average share count of 18.1 million. This compares to net income of $3.3 million or $0.19 a share for the second quarter of 2009, with an average fully diluted share count of 17.9 million.

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