Cai International, Inc. (CAP)

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CAI International Inc. (CAP)

Q1 2010 Earnings Call

May 4, 2010 17:00 PM ET

Executives

Victor Garcia – Chief Financial Officer

John Nishibori – President and Chief Executive Officer

Analysts

Bob Napoli - Piper Jaffray

Sameer Gokhale – KBW

David Long – William Blair

Presentation

Operator

Good day, ladies and gentlemen. And welcome to the CAI International First Quarter 2010 Earnings 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 now like to introduce your host for today’s conference, Mr. Victor Garcia, Chief Financial Officer. Sir, you may begin.

Victor Garcia

Great. 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, investment plans 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 and 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 introduce John Nishibori, our President and Chief Executive Officer. John, please go ahead.

John Nishibori

Thank you. Welcome to CAI’s 2010 first quarter earnings conference call. As I indicated in last quarter’s conference call that was held in March, the demand for containers has significantly increased in 2010.

February had strong lease out demand and that was followed with continued strength in demand in March and April. We expect this strong market to continue at least for the rest of this year.

For the first quarter of 2010, we reported total revenue of $15.2 million and net income of $3 million or $0.17 a share.

Overall, the outlook for world containerized trade continues to improve and is reflected in our improving fleet utilization. Utilization of our container fleet has increased 4.4% from the fourth quarter of 2009 to 86.3% in the first quarter of 2010.

Customers are leasing containers with limited incentives in all locations and per diem rates have increased for new lease outs for depot and newly manufactured equipment as a result of strong demand and higher container prices.

Clarkson Research in March forecast that world containerized trade will grow 7.5% in 2010, and 9.5% in 2011. The 2010 growth forecast in March was compared to a 5.5% growth forecast in February.

Our bookings for future lease outs remain strong and we expect our fleet utilization to continue to increase over the next several months. As of April 30, 2010, our utilization had increased to 92.9% and approximately half of our idle equipment are booked for pick-up.

Because it’s a strong demand for containers, we have increased investment in equipment. We have ordered 32,000 TEU’s of new equipment, most of which is due to be delivered in the second quarter. We have also entered into sale lease back arrangements for some shipping lines.

On March 25, 2010, we purchased 39,000 TEU’s of containers from a major Asian shipping line and leased them back to them for up to four years. Similarly, on April 15, 2010, we purchased 7,100 TEU’s of containers from a major European shipping line and have leased the units back to them on a five-year lease.

All together, the new containers and sale lease back containers represent a total investment commitment of $88 million during the first four months of this year and we believe this will result in a significant increase in container rental revenues for the rest of the year.

Besides the increase in revenue, the financial impact of improving utilization is that our storage costs will decline as depot inventory is leased out, thus improving our operating income and net income margins.

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

We continue to speak with arrangers for container fund investments about new investment funds in Europe and we believe that as the outlook for container demand continues to improve that arrangers will be looking for new investment opportunities.

We also continue to focus on establishing container investment programs in Japan and our team continues to make good inroads in establishing additional investment programs. This effort is being done through our subsidiary, CAIJ.

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

Victor Garcia

Thank you, John. Earlier today, we reported 2010 first quarter net income of $3 million, or $0.17 per fully diluted share on an average share count of 18 million shares. This compares to net income of $4 million or $0.22 a share for the first quarter of 2009, with an average fully diluted share count of 17.9 million.

Total revenue for the first quarter was $15.2 million, a decrease of $2.4 million from the total revenue for the first quarter of 2009. Container rental revenue was $12.3 million during the first quarter, compared to $14.1 million in the same quarter last year. The container rental revenue declined as a result of operating a smaller average owned fleet this past quarter, compared to the same quarter last year.

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