Cai International, Inc. (CAP)

CAP 
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CAI International Inc. (CAP)

Q2 2011 Earnings Call

July 26, 2011 5:00 PM ET

Executives

Tim Page – Chief Financial Officer

Victor Garcia – Chief Executive Officer

Analysts

Sameer Gokhale – Keefe, Bruyette

Greg Lewis – Credit Suisse

John Stilmar – Suntrust

Sal Vitale – Agee

Daniel Furtado – Jefferies

Helane Becker – Dahlman Rose

John Denosky – Borderline Capital

Presentation

Operator

Good day, ladies and gentlemen. And welcome to the CAI International Q2 2011 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instruction on how to participate will be given at that time. (Operator instructions)

And as a reminder, today’s conference call is being recorded. Now, I would like to turn the conference over to your host Chief Financial Officer, Mr. Tim Page.

Tim Page

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, 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.

I would now like to turn the call over to Victor Garcia, our CEO.

Victor Garcia

Good afternoon. We are very pleased with our results for this quarter and for the first half of this year, with quarterly year-over-year revenue growth of 66% and earnings per fully diluted share up 77% to $0.55 per share.

In line with our expectations, market demand for our service was strong in the second quarter as equipment that was ordered by the shippers in the fourth quarter of last year and first quarter of this year was picked up.

Utilization rates remain robust at 98%, the average per diem rates of our own fleet increased 31% over last year and our average owned fleet on lease to customers during the second quarter of this year increased 37% as compared to the second quarter of last year. All these factors contributed to strong top and bottom line results for the quarter.

Year-to-date, we have leased out 61,000 TEUs of new equipment, including 13,000 picked up so far this month. We have commitments from our customers to pick up an additional $86 million of equipment during the remainder of the third quarter.

Our investment level so far this year has exceeded our original plans and exceeds our 2010 investment level. Our owned fleet now represents 47% of our total fleet, as compared to 34% at the end of the second quarter last year.

We expect that by year end the ratio of owned versus managed fleet will be 50-50. This increase in the size of our owned fleet is one of the primary factors driving our earnings growth. We expect to continue investing in our fleet but we’ll seek opportunities to also grow our managed fleet.

Besides our commitment to invest in our owned fleet we believe there are strong macro forces that have been and will continue to be positive for the container leasing industry in general and CIA in particular.

Clarkson’s Research has forecasted 2011 global containerized trade volume to grow by 9%, with Asia, the Middle East and South America growing at relatively higher rates than the U.S. and Europe. Growth in trade volume drives growth in container usage and has the need for container investment.

Growth in trade volume is also positive factor in utilization rates. During the 2008, 2009 recession utilization rates fell as trade volume decreased. Declining trade volume is not the case today, trade volumes are increasing. Consequently, we expect continued demand for new containers and for utilization rates to remain robust.

A second macro trend is that in spite of increased volumes of freight shippers are facing earnings pressure as a result of fuel cost and an oversupply of ship capacity. This earnings pressure may translate into opportunity for the container leasing industry as shippers look towards lessors to provide a greater proportion of their total container needs.

We do not expect the recent decline in container box prices to have an adverse impact on our earnings. While new lease rates will reflect lower per diem on the incremental investment the overall returns will be relatively unchanged from the recent period of higher box prices, because lower box prices result in correspondingly lower depreciation and lower interest expense per unit.

As we look out to the third quarter and into next year, it is important to understand that 87% of our own fleet on a TEU basis is on long-term leases, which are not subject to market based per diem rate adjustments or equipment churn. As a result, our container rental revenue and associated expense profile from existing leases is relatively locked in over the short to medium-term.

In summary, the expected growth in global trade volumes, our planned investment levels and the high percentage of our fleet that is on long-term leases all combine to lead us to believe that we can expect continued strong revenue and earnings growth at CAI.

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