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CAI International Inc. (CAP)

Q3 2010 Earnings Conference Call

November 2, 2010 5:00 PM ET


Victor Garcia – COO

John Nishibori – President and CEO

Gary Sawka – Interim Chief Financial Officer


Bob Napoli – Piper Jaffray

Sameer Gokhale – KBW

Daniel Furtado – Jefferies

Andrew Bolsovec (ph)



Good day, ladies and gentlemen, and welcome to your CAI International Q3 2010 Earnings Conference Call. (Operator Instructions). As a reminder, today’s conference is being recorded. And now I would like to introduce your host for today, Victor Garcia, Chief Operating Officer.

Victor Garcia

Good afternoon, and thanks for joining us today. Certain statements made during this conference call may be forward looking and are made pursuant to Safe Harbor Provisions of Section 21E of the Securities and Exchange Act of 1934, and involve risks and uncertainties that can cause actual results to differ materially from current expectations, including but not limited to utilization rates, economic conditions, customer demand, increased competition, and container investment plans and others. We refer you to the documents that CAI International has filed with the Securities and Exchange Commission, including an annual report on Form 10K, the quarterly reports filed on Form 10Q, and its reports on Form 8K. 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 Q3 earnings conference call. The market demand for our services remains very strong, and we continue to benefit from this demand through the high utilization of our fleet. We recorded over $9 million in net income for the quarter, or $0.50 per share. In each of the last two quarters we have reported over 14% sequential growth in revenue, over 34% sequential growth in operating income, and over 60% growth in net income. We are excited about these results and expect that the continued high utilization of our fleet and with the capital expenditure investment we are making, that the financial momentum will continue in the coming quarters. I would like to hand it over to Victor Garcia, our Chief Operating Officer, to discuss in greater detail our operating results and market environment.

Victor Garcia

Thank you, John. As John mentioned, during the Q3 our utilization remained strong and has averaged 98.1%, a 3% increase in utilization from the average utilization recorded during the Q2 of 2010. Utilization for the past two quarters has neared full utilization levels, however we do not believe our financial momentum has peaked and that we are in the early stages of a multi-year recovery in world trade and container demand.

The financial update for this quarter, and for future quarters, will be the sequential revenue and net income impacts from the level of investments we have made. During this quarter, we took delivery of 40,500 TEUs. Some of those units will show the full revenue impact during the Q4. Through the end of the Q3, we purchase or committed to purchase, over $200 million in containers. We have committed to additional investments in the Q4, and now expect to purchase or commit to purchase over $250 million for the year.

To put this year’s investments in perspective, we estimate that our investment in containers this year will represent over 70% of the net booked value of containers CAI had on its balance sheet at the end of 2009. Because of our investment level this year and our expected investment level in 2011, we believe we should continue to grow revenue and net income at a faster pace than our industry overall.

Our container rental revenue this quarter increased 23% sequentially from the Q2 of 2010, and operating income increased 35%. Our earnings per share for the quarter were $0.50 per fully diluted share, compared to $0.31 during the Q2 of 2010, and $0.18 during the Q3 of 2009.

As you can see by our results this year, this is a good time for CAI and the container leasing industry, and we believe we are in the early phases of a multi-year improvement in demand for containers. This year we are benefiting from the increased demand as occurred from the return of world trade growth in 2010, and the underinvestment in containers that’s occurred over the past two years. Parson’s Research estimates that world trade growth will increase 11.5% this year, and 10.4% in 2011. That level of growth has been consistent with historical long-term growth in world trade. A 10% increase in world trade growth in 2011, coupled with a 5% to 6% attrition rate of the world container fleet, is expected to provide strong support for new container investment over the next few quarters.

As I said, in 2009 there was minimal investment in (inaudible) containers. In 2010, overall container production is estimated to be approximately half the level of the 3 million TEU production that it has averaged over the five years prior to 2009. However, it is estimated that the container lessors have purchased approximately 70% of the container production in 2010 as opposed to approximately 40% to 45% in a normal year production level. Shipping lines have improved their financial position this year, and so we expect that they will be more active in purchasing containers in 2011. However, we do expect that they will continue to be more dependent on the leasing community in 2011 than the historical average, which will provide strong demand for CAI.

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