Cai International, Inc. (CAP)

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CAI International, Inc. (CAP)

Q4 2010 Earnings Call

March 1, 2011 5:00 PM ET

Executives

Gary Sawka – Interim CFO

Masaaki Nishibori – President and CEO

Victor Garcia – SVP and COO

Analysts

Robert Napoli – Piper Jaffray

Sameer Gokhale – Keefe, Bruyette & Woods

Presentation

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the CAI International Fourth Quarter 2010 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 introduce your host for today, Gary Sawka, the Interim Chief Financial Officer. Sir, please go ahead.

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

Masaaki Nishibori

Thank you, Larry. Welcome to CAI’s 2010 fourth quarter earnings conference call. We are very pleased with our results for this quarter and what we have been able to achieve in December by raising additional debt and equity that will position our company well for their opportunities in 2011.

For 2010, we reported $28.4 million in net income, the most profitable year in the history of our company and 109% increase from our net income in 2009. The market demand for our services remains very strong and we continue to benefit from this demand with high utilization of our fleet. We reported $10.5 million in net income for the quarter or $0.57 per share. This represents a 235% increase over the $0.17 per share earned in the same quarter of 2009. For the full year ended December 31, 2010, we are reporting $1.56 of earnings per share, an increase of 105% over the prior year ended.

During the last three quarters of 2010, we have reported an average of 19% sequential growth in revenue, 46% sequential growth in operating income, and 53% growth in net income excluding the third quarter onetime tax benefit. We are excited about these results and expect that with a continued high utilization of our fleet and the capital investment we are making, but the financial momentum will continue in the coming quarters.

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 fourth quarter, our utilization remained strong and is averaged 98%, a 20% increase from the average utilization reported during the fourth quarter of 2009. Utilization for the past two quarters has near to full utilization level. We believe that utilization will remain at around the same level in 2011, since in the first quarter, utilization has remained near full utilization and demand seasonally increases during the second and third quarters of the year.

New container production costs, which are currently, approximately $2,900 for a 20 foot container will help support the current utilization levels because of the relatively inexpensive cost of equipment already in service as compared to cost 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 to new containers we have made and will make over the coming quarters.

In 2010, CAI took delivery of 142,000 TEU of containers and purchased 24,000 TEU of containers, we previously managed from various third party investors. Most of that procurement occurred in the second half of 2010, resulting in the second half accounting for 69% of full year net income.

In 2010, we purchased or committed to purchase over $365 million in containers. In the first quarter of 2011, we have committed two additional investments and expect most of that equipment to be delivered in the months from March to May 2011.

To place 2010’s container investment program in prospective, CAI’s own fleet has increased 48% in terms of TEU from the beginning of 2010 till the end of 2010. Because of our investment levels this past year and our expected investment level for 2011, we believe we should continue to grow revenue and net income at a faster pace than the industry overall.

Our container rental revenue this quarter increased 25% sequentially from the third quarter 2010 and operating income increased 44%. As John mentioned, our earnings per share for the quarter were $0.57 per fully diluted share, compared to $0.50 during the third of quarter 2010, and $0.17 during the fourth quarter of 2009.

As you can see by our results this year, this is the good time for CAI and the container leasing industry in general. This year, we are benefiting from the increased demand that has occurred from the return of world trade growth and the under investment in containers that occurred over the past two years. Clarkson Research estimated that world trade growth increased 12.1% in 2010 and will increase 9.7% in 2011. That level of growth has been consistent with the 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 coming several quarters.

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