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CAI International, Inc. (CAP)

Q1 2011 Earnings Call

April 26, 2011 5:00 PM ET


Gary Sawka – Interim CFO

John Nishibori – President and CEO

Victor Garcia – SVP and COO


Robert Napoli – Piper Jaffray

Gregory Lewis – Credit Suisse

Sameer Gokhale – KBW

John Stilmar – SunTrust

Helane Becker – Dahlman Rose

Salvatore Vitale – Sterne Agee

Daniel Furtado – Jefferies



Good day, ladies and gentlemen, and welcome to the CAI International First Quarter 2011 Earnings Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session with instructions following at that time. (Operator Instructions) As a reminder, this conference is being recorded.

And now I will turn it over to Interim Chief Financial Officer Mr. Gary Sawka. Please begin sir.

Gary Sawka

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 and 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 the CAI International has filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K 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, Gary. Welcome to CAI’s 2010 first quarter earnings conference call. We are very pleased with our results for this quarter and we have been able to achieve over the past three months.

For the quarter we reported $12.8 million in net income, the most profitable quarter in the history of our company and a 326% increase from our net income for the same quarter of 2010. Our earnings per share this quarter was $0.65, an increase of 14% from the 57% for fully diluted shares in the fourth quarter and 280% above the $0.17 for fully diluted shares reported during the first quarter of 2010.

We remain optimistic about the prospects of Container demand for the remainder of the year and believe we are well positioned to benefit from this favorable market trend.

I’d like to hand it over to Victor Garcia, our Chief Operating Officer, to discuss in greater detail our operating results and market environment. Victor?

Victor Garcia

Thank you, John. During the first quarter, our utilization remained strong and has averaged 98%, unchanged from the level during the fourth quarter of 2010 and a 13.6% increase from the average utilization of 86.3% reported during the first quarter of 2010. Utilization for the past two quarters has neared the full utilization level. We believe that utilization will remain at around the same level during 2011, since in the first quarter utilization has remained at near full utilization and demand seasonally increases during the second and third quarters of the year.

New container production costs have declined slightly in recently, but remain at a level high enough that we believe will support the current utilization levels because of the relatively inexpensive cost of equipment already in service as compared to costs of new equipment additions. Utilization is an important factor in our results. However, over the next several quarters, sequential revenue and net income growth will come from the investment commitments in new containers we have made and will make over the coming quarters.

During the first quarter of 2011 CAI took delivery of 55,000 TEU of containers. We and our competitors purchased containers during the fourth quarter of 2010 and first quarter of 2011, thus increasing the amount of equipment available to be leased over the last few months. During that same period of time shipping lines have requested for equipment leases to begin primarily during the second quarter.

A competitive dynamics has resulted in per diem lease rates on incremental new factory equipment declining by approximately 5% from where they were in the fourth quarter of 2010. However, we do not believe the current industry inventory level to be excessive based on our outlook for this year or by historical standards, and we believe that much of what is in inventory has committed customer orders. It is our expectation that as the seasonal demand increases over the coming weeks that lease rates will also strengthen as the stock of inventory declines.

As we look at our results for this quarter our container rental revenue increased 5% sequentially from the fourth quarter of 2010 and operating income increased 27%. The sequential growth of our operating income resulted from approximately 700,000 and reduced depreciation from our change in residual value estimates, continued strong gains on disposition of containers and approximately 850,000 of reduced bad debt expense related to one particular customer. We also benefited this quarter from better management fee revenue coming from disposition of containers in our managed portfolio and from a 1.4 million gain on the sale of container portfolios.

We expect next quarter’s management fee revenues to be below the current quarter due to lower disposition fees on the managed fleet and we do not expect a similar gain on the sale of container portfolios in Q2 2011 as we had in the first quarter.

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