Cai International, Inc. (CAP)

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CAI International Inc. (CAP)

Q4 2009 Earnings Call

March 8, 2010 5:00 pm ET


Victor Garcia CFO & SVP

John Nishibori – President & CEO


Bob Napoli – Piper Jaffray

Rick Shane – Jefferies

Sameer Gokhale – KBW

Tyrus Bookman – Park West Asset Management



Good day, ladies and gentlemen, and welcome to CAI International fourth quarter 2009 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 is being recorded.

I would now like to turn the call over to your host, Victor Garcia.

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 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, utilization rates, economic conditions, customer demand, the increased competition, expected savings related to the integration of CAI constant operation 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.

In addition, during today’s call, we will be discussing certain non-GAAP items. For a reconciliation of non-GAAP items, we refer you to our 8-K filing, which was filed with the Securities and Exchange Commission earlier today. John?

John Nishibori

Welcome to CAI’s 2009 fourth quarter and full year earnings conference call. We have now concluded the worst year for containerized trade worldwide. I am pleased that during this difficult year, we have now reported solid profits in each of the four quarters.

The fourth quarter of 2009, we reported net income of $3.1 million or $0.17 a share, resulting in full year net income of $13.6 million or $0.76 per share. Utilization for us bottomed in the middle of the third quarter and in the fourth quarter we had an improvement in utilization of just under 2%.

What is even more encouraging for us is that utilization has continued to increase in the first quarter and in February; we had a utilization rate of approximately 86%.

February 2010 has been the highest lease up month we have had since August 2008, the last month before the Lehman Brothers bankruptcy, which accelerated the downturn in the capital markets, deepened the worldwide recession.

18 months later, the outlook for our industry is vastly improved. World containerized trade is again growing and is now forecasted by Clarkson Research to grow 5.5% in 2010 and 7.6% in 2011 after an estimated 9.5% decline in 2009.

Actually, in each of the past six months from September 2009 to February 2010, Clarkson Research has in each successive month increased its forecast for containerized trade growth in 2010.

We hear from our customers that they are seeing cargo volumes increase in all the major trading lanes, even the Pacific trade, which was hit the hardest, is showing signs of recovery.

According to the Japan Maritime Center, for the month of December 2009, Asia to U.S. container trade increased year-on-year by 3%, which is the first time in 27 months to register an increase. U.S. to Asia increased the fourth consecutive month in December, by 47%.

There are other factors that should also benefit our utilization in 2010. First, shipping lines continue to slow steam their ships in order to save on fuel costs. Slow steaming means the turn time of a container is extended and thus more containers will be needed by shipping lines.

Second, the container manufacturing facilities are operating only one of three possible shifts. We believe it is because of the limited availability of trained labor that left the industry when the factory shutdown in 2009. The single shift makes ordering additional equipment more of a challenge and expensive, but keeps new supply somewhat restrained for the next few months.

Third, we also believe that the major shipping lines will turn more to leasing of containers this year than in the past years because of their limited capital budgets.

Our bookings for future lease-outs remain strong and we expect our fleet utilization to continue to increase over the next several months. So, this year we have ordered 22,000 TEUs of newly manufactured containers to be delivered beginning this month.

We are also focusing on repairing some of our older assets that have minimal repairs in order to place the units back on lease. In 2009, we likely would have decided to sell those units, but now it makes more sense to repair and lease the units. We expect lease rates to improve because of the stronger demand.

The financial impact of the increasing utilization is that our container rental revenue should rise over the coming months, while at the same time our storage costs decline, thus improving our operating income and net income margins.

Moreover, our management fee income should increase, as the profitability of the managed portfolio also increases, since we get a percentage of the net operating income of those portfolios as management fee.

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