CAI CAI International Inc

CAI International, Inc. (CAI) (NYSE: CAP), one of the world’s leading transportation finance and logistics companies, today reported results for the second quarter of 2015.

Highlights

• CAI reported rental revenue for the second quarter of 2015 of $56.7 million, an increase of $5.2 million, or 10%, compared to the second quarter of 2014.
• CAI reported net income attributable to CAI common stockholders for the second quarter of 2015 of $12.9 million, a decrease of $0.6 million, or 4%, compared to the second quarter of 2014.
• Net income attributable to CAI common stockholders per fully diluted share was $0.60 for the second quarter of 2015, unchanged from the second quarter of 2014. Adjusting for a prior period, non-recurring charge of approximately $0.8 million relating to container management fees, adjusted net income attributable to CAI common stockholders1 for the second quarter of 2015 was $13.4 million, or $0.63 per fully diluted share.
• CAI closed an agreement to purchase ClearPointt Logistics LLC, a domestic intermodal logistics company, for approximately $4.1 million.
• CAI entered into a multi-year agreement for the manufacture of 2,000 railcars for delivery between 2016 and 2018. Total investment under the equipment order is expected to be in excess of $200 million.
• Adjusted EBITDA1 for the second quarter of 2015 was $51.4 million, an increase of 8% compared to the second quarter of 2014.
• Average utilization during the second quarter of 2015 was 93.3% (on a CEU basis) compared to 91.2% for the second quarter of 2014.
• CAI acquired approximately 22,000 CEU of containers at a cost of $46 million, and 1,022 railcars at a cost of $67 million, during the second quarter of 2015.
• CAI’s Board of Directors approved a share repurchase program under which CAI is authorized to repurchase up to one million shares of its outstanding common stock.

Total revenue for the second quarter of 2015 was $59.4 million, compared to $55.3 million for the second quarter of 2014, an increase of 7%. Rental revenue for the second quarter of 2015 was $56.7 million, compared to $51.5 million for the second quarter of 2014. The increase in rental revenue was primarily due to an increase in the average number of owned containers on lease and the growth in our railcar business. Management fee revenue for the second quarter of 2015 was $0.3 million, compared to $1.6 million for the second quarter of 2014. Management fee revenue in the second quarter of 2015 was reduced by a non-recurring charge of $0.8 million, relating to an adjustment of prior period management fees on some of CAI’s container management agreements. Finance lease income for the second quarter of 2015 was $2.3 million, unchanged compared to the second quarter of 2014.

CAI’s Board of Directors has approved a share repurchase program under which CAI is authorized to repurchase up to one million shares of its outstanding common stock from time to time and at prices considered appropriate by the company. The stock repurchases may be made in the open market, block trades or privately negotiated transactions. The primary purpose of the share repurchase program is to allow CAI the flexibility to repurchase its common stock as a means to return value to stockholders. The number of shares of common stock actually acquired, if any, by CAI will depend on subsequent developments, corporate needs, economic outlook and market conditions.

Victor Garcia, Chief Executive Officer of CAI commented, “For the quarter we reported net income of $12.9 million, or $0.60 per fully diluted share. Our results for the three month period include a non-recurring charge related to an adjustment of prior period management fees on some of our container management agreements. Excluding this one-time item, our adjusted net income1 for the quarter was $13.4 million, or $0.63 per fully diluted share.

“The second quarter has traditionally been the fiscal quarter when we observe the seasonal upturn in demand for containers. However, the seasonal pattern did not materialize this quarter and utilization declined slightly during the quarter. We attribute the lower demand for equipment to weaker economic growth, particularly around China. Overall demand from port locations in China has been weak and most of the inventory that has been returned has been to Asia. Demand in other global locations, such as within the United States, and in particular within Europe, has been stronger but has not offset the slowness around China.

“As a result of the soft economic conditions in China, steel prices, and new container prices, have declined, which placed some pressure on per diem rates and secondary container prices during the quarter. However, overall the secondary demand for containers remains strong and the decline in prices has been limited. During the quarter, we reported a slight loss on sale of equipment as we moved out some older, damaged units from our fleet and some units from sale leasebacks that had higher net book values. We would expect pricing on secondary containers to remain under pressure if steel and new container prices decline further in future periods.”

Mr. Garcia continued, “We are excited about the acquisition of ClearPointt Logistics. ClearPointt is a U.S. based intermodal logistics company focused on the domestic intermodal market. The company has 22 employees and agents serving over 280 customers in the United States. ClearPointt is an asset light company that generated $32 million of revenue in 2014. We believe that the acquisition of ClearPointt complements and advances CAI’s strategy of being a fully operational logistics provider, and we expect numerous synergies in bringing the two companies together. CAI intends to utilize ClearPointt’s operations and marketing capabilities to expand its logistics business within ClearPointt’s 53-foot domestic intermodal market, as well as by utilizing CAI’s traditional container assets. With ClearPointt we believe we will better manage utilization of our container fleet and better position our equipment into higher demand sale or lease locations. We believe that the acquisition will have a neutral effect on 2015 earnings per share but expect it to be accretive in 2016 and beyond.

“We continue to benefit from the ongoing delivery and lease-out of rail equipment. Revenue from our rail business during the quarter was $3.8 million, an increase of 29% from the first quarter. Operating income from our rail business during the quarter was $1.4 million, an increase of 72% compared to the first quarter. The operating income margin of our rail business also increased in the second quarter, and we expect to benefit from further margin expansion with the continued delivery of rail equipment in 2015, and the delivery of 2,000 railcars between 2016 and 2018 under a new multi-year railcar order. The rail business continues to extend leases at or above prior rates, and together with new additions to the fleet will be a more significant contributor to our business.”

Mr. Garcia concluded, “Although we faced some headwinds in our container leasing business, the second quarter was an exciting quarter for our company. We have great momentum in our rail operation which allows us opportunities to better balance and diversify our overall business. We have also added a strategically important acquisition to our company in ClearPointt, which we believe helps solidify and differentiate CAI as a finance and logistics company, expanding our customer base, adding value to our existing customers and increasing returns to our shareholders. With the ClearPointt acquisition, CAI now has approximately 20 marketing employees and agents in the United States, which we believe is a significantly larger marketing team than at our traditional competitors, giving us relationships with more U.S. customers and offering a wider range of services. We will use that strength to our advantage. Our marketing group will be focused on expanding its customer base and cross marketing products to our customers. We intend to build on this outstanding franchise in future quarters.”

1 Refer to the “Reconciliation of GAAP Amounts to Non GAAP Amounts” and “Use of Non-GAAP Financial Measures” set forth below.

                    CAI International, Inc. Consolidated Balance Sheets (In thousands, except share information) (UNAUDITED)   June 30, December 31,   2015     2014   Assets Current assets Cash $ 20,271 $ 27,810 Cash held by variable interest entities 40,859 26,011 Accounts receivable (owned fleet), net of allowance for doubtful accounts of $896 and $680 at June 30, 2015 and December 31, 2014, respectively 48,172 49,524 Accounts receivable (managed fleet) 7,348 8,498 Current portion of direct finance leases 20,288 18,150 Prepaid expenses and other current assets   17,404     14,806   Total current assets 154,342 144,799 Restricted cash 7,723 8,232 Rental equipment, net of accumulated depreciation of $311,726 and $274,333 at June 30, 2015 and December 31, 2014, respectively 1,721,187 1,564,777 Net investment in direct finance leases 82,288 76,814 Furniture, fixtures and equipment, net of accumulated depreciation of $2,232 and $2,019 at June 30, 2015 and December 31, 2014, respectively 780 945 Intangible assets, net of accumulated amortization of $4,807 and $4,817 at June 30, 2015 and December 31, 2014, respectively   137     273   Total assets $ 1,966,457   $ 1,795,840     Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 6,722 $ 8,414 Accrued expenses and other current liabilities 8,116 9,029 Due to container investors 8,791 12,984 Unearned revenue 10,352 7,172 Current portion of debt 231,181 203,199 Current portion of capital lease obligations 92 1,015 Rental equipment payable   17,999     7,381   Total current liabilities 283,253 249,194 Debt 1,165,324 1,058,754 Deferred income tax liability 43,848 43,419 Capital lease obligations   -     1,568   Total liabilities   1,492,425     1,352,935     Stockholders' equity Common stock: par value $.0001 per share; authorized 84,000,000 shares; issued and outstanding 21,201,743 and 20,788,277 shares at June 30, 2015 and December 31, 2014, respectively 2 2 Additional paid-in capital 161,481 154,894 Accumulated other comprehensive loss (7,638 ) (5,677 ) Retained earnings   319,328     292,897   Total CAI stockholders' equity 473,173 442,116 Non-controlling interest   859     789   Total stockholders' equity   474,032     442,905   Total liabilities and stockholders' equity $ 1,966,457   $ 1,795,840       CAI International, Inc. Consolidated Statements of Income (In thousands, except per share data) (UNAUDITED)                                 Three Months Ended Six Months Ended June 30, June 30,   2015     2014     2015     2014   Revenue Rental revenue $ 56,734 $ 51,493 $ 111,617 $ 102,177 Management fee revenue 287 1,595 1,544 3,120 Finance lease income   2,345     2,224     4,697     4,279   Total revenue   59,366     55,312     117,858     109,576     Operating expenses Depreciation of rental equipment 22,029 19,056 43,252 37,719 Amortization of intangible assets 45 99 129 198 Loss (gain) on sale of used rental equipment 192 (1,534 ) (165 ) (3,324 ) Storage, handling and other expenses 6,994 6,797 13,759 12,790 Marketing, general and administrative expenses 6,972 6,397 14,099 13,103 Loss on foreign exchange   100     153     59     317   Total operating expenses   36,332     30,968     71,133     60,803     Operating income   23,034     24,344     46,725     48,773     Interest expense 9,048 8,883 17,829 17,678 Interest income   (1 )   (1 )   (4 )   (5 ) Net interest expense   9,047     8,882     17,825     17,673     Net income before income taxes and non-controlling interest 13,987 15,462 28,900 31,100 Income tax expense   1,057     1,968     2,399     3,375     Net income 12,930 13,494 26,501 27,725 Net income attributable to non-controlling interest   (41 )   (48 )   (70 )   (8 ) Net income attributable to CAI common stockholders $ 12,889   $ 13,446   $ 26,431   $ 27,717       Net income per share attributable to CAI common stockholders Basic $ 0.61 $ 0.61 $ 1.26 $ 1.26 Diluted $ 0.60 $ 0.60 $ 1.24 $ 1.23   Weighted average shares outstanding Basic 21,095 21,910 21,000 22,061 Diluted 21,398 22,355 21,346 22,506                 CAI International, Inc. Consolidated Statements of Cash Flows (In thousands, except per share data) (UNAUDITED)   Six Months Ended

June 30,

  2015     2014   Cash flows from operating activities Net income $ 26,501 $ 27,725 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 43,466 37,973 Amortization of debt issuance costs 1,338 1,375 Amortization of intangible assets 129 198 Stock-based compensation expense 969 842 Loss on foreign exchange 170 122 Gain on sale of used rental equipment (165 ) (3,324 ) Deferred income taxes 429 630 Bad debt expense (recovery) 193 (19 ) Changes in other operating assets and liabilities: Accounts receivable (4,387 ) (4,688 ) Prepaid expenses and other assets (2,273 ) (291 ) Accounts payable, accrued expenses and other current liabilities 3,808 1,776 Due to container investors (4,193 ) (1,789 ) Unearned revenue   3,216     1,920   Net cash provided by operating activities   69,201     62,450   Cash flows from investing activities Purchase of rental equipment (236,330 ) (157,767 ) Net proceeds from disposition of used rental equipment 27,585 26,496 Purchase of furniture, fixtures and equipment (49 ) (19 ) Receipt of principal payments from direct financing leases   10,504     7,297   Net cash used in investing activities   (198,290 )   (123,993 ) Cash flows from financing activities Proceeds from debt 236,831 240,560 Principal payments on debt (104,714 ) (159,282 ) Debt issuance costs (1,662 ) - Decrease in restricted cash 509 510 Repurchase of stock - (19,387 ) Exercise of stock options 4,645 28 Excess tax benefit from share-based compensation awards   1,006     -   Net cash provided by financing activities   136,615     62,429   Effect on cash of foreign currency translation   (217 )   358   Net increase in cash 7,309 1,244 Cash at beginning of the period   53,821     45,741   Cash at end of the period $ 61,130   $ 46,985                               CAI International, Inc. Fleet Data (UNAUDITED)   As of June 30, 2015 2014   Owned container fleet in TEUs 966,459 907,210 Managed container fleet in TEUs 222,140 266,860 Total container fleet in TEUs 1,188,599 1,174,070   Owned container fleet in CEUs 1,008,050 949,711 Managed container fleet in CEUs 200,925 245,460 Total container fleet in CEUs 1,208,975 1,195,171   Owned railcar fleet in units 3,671 1,973     Three Months Ended Six Months Ended June 30, June 30, 2015 2014 2015 2014 Average Utilization Container Fleet Utilization in TEUs 92.6% 90.2% 92.7% 90.2% Container Fleet Utilization in CEUs 93.3% 91.2% 93.4% 91.2%   As of June 30, 2015 2014 Period Ending Utilization Container Fleet Utilization in TEUs 92.1% 91.3% Container Fleet Utilization in CEUs 92.7% 92.1%   Utilization is computed by dividing total units on lease, in CEUs (cost equivalent units) or TEUs (twenty foot equivalent units), by the total units in our fleet, in CEUs or TEUs, excluding new units not yet leased and off-hire units designated for sale. CEU is a ratio used to convert the actual number of containers in our fleet to a figure based on the relative purchase prices of our various equipment types to that of a standard 20 foot dry van container. For example, the CEU ratio for a standard 40 foot dry van container is 1.6, and a 40 foot high cube container is 1.7.                                 Reconciliation of GAAP Amounts to Non-GAAP Amounts (In thousands, except per share data) (UNAUDITED)   Three Months Ended Six Months Ended June 30, June 30,   2015     2014   2015     2014 Net income attributable to CAI common stockholders $ 12,889 $ 13,446 $ 26,431 $ 27,717 Non-recurring tax charge - 626 - 626 Non-recurring container management charge 828 - 828 - Tax effect of non-recurring management charge   (298 )   -   (298 )   -   Adjusted net income attributable to CAI common stockholders $ 13,419   $ 14,072 $ 26,961   $ 28,343     Diluted net income per share attributable to CAI common stockholders $ 0.60 $ 0.60 $ 1.24 $ 1.23 Diluted net income per share attributable to CAI common stockholders $ 0.63 $ 0.63 $ 1.26 $ 1.26   Weighted average number of common shares used to calculate (in thousands) Diluted net income per share and diluted adjusted net income per share attributable to CAI common stockholders 21,398 22,355 21,346 22,506     Net income attributable to CAI common stockholders $ 12,889 $ 13,446 $ 26,431 $ 27,717 Net interest expense 9,047 8,882 17,825 17,673 Depreciation 22,136 19,183 43,466 37,973 Amortization of intangible assets 45 99 129 198 Income tax expense   1,057       1,968   2,399       3,375 EBITDA 45,174 43,578 90,250 86,936 Principal payments from direct finance leases 5,350 3,951 10,504 7,297 Non-recurring management charge   828     -   828     - Adjusted EBITDA $ 51,352   $ 47,529 $ 101,582   $ 94,233   EBITDA represents net income before interest, income taxes, depreciation and amortization of intangible assets. Adjusted EBITDA represents EBITDA plus principal payments from direct finance leases, less a non-recurring net settlement received from a customer.  

Conference Call

A conference call to discuss the financial results for the second quarter of 2015 will be held on Tuesday, July 28, 2015 at 5:00 p.m. ET. The dial-in number for the teleconference is 1-888-398-8098; outside of the U.S., call 1-707-287-9363. The call may be accessed live over the internet (listen only) under the “Investors” tab of CAI’s website, www.capps.com, by selecting “Q2 2015 Earnings Conference Call.” A webcast replay will be available for 30 days on the “Investors” tab of our website.

Use of Non-GAAP Financial Measures

This press release contains non-GAAP financial measures, and includes net income and earnings per share adjusted to reflect the impact of a non-recurring container management charge and related tax effects, and a non-recurring tax charge. In addition, this press release contains EBITDA and adjusted EBITDA, both of which are non-GAAP financial measures, and are defined in the tables above. These measures are not in accordance with, or an alternative for, generally accepted accounting principles, or GAAP, and may be different from non-GAAP financial measures used by other companies. We believe the presentation of non-GAAP financial measures provides useful information to management and investors regarding various financial and business trends relating to our financial condition and results of operations, and that when GAAP financial measures are viewed in conjunction with non-GAAP financial measures, investors are provided with a more meaningful understanding of our ongoing operating performance. Non-GAAP financial measures are not intended to be considered in isolation or as a substitute for GAAP financial measures. To the extent this release contains historical non-GAAP financial measures, we have also provided a reconciliation to the corresponding GAAP financial measures for comparative purposes.

About CAI International, Inc.

CAI is one of the world’s leading transportation finance and logistics companies. As of June 30, 2015, CAI operated a worldwide fleet of approximately 1,209,000 CEUs of containers through 16 offices located in 13 countries including the United States. As of June 30, 2015, CAI also owned a fleet of 3,671 railcars, which it leases within North America.

Forward-Looking Statements

This press release contains forward-looking statements regarding future events and the future performance of CAI, including but not limited to, the statements regarding management's business outlook on the container leasing business, the stock repurchase authorization and the flexibility it provides as an effective way to return value to stockholders, management's outlook for growth of CAI’s railcar leasing investments and the outlook, benefits and synergies expected from the acquisition of ClearPointt Logistics LLC. These statements and others herein are forward-looking statements within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934 and involve risks and uncertainties that could cause actual results of operations and other performance measures to differ materially from current expectations including, but not limited to, utilization rates, expected economic conditions, expected growth of international trade, availability of credit on commercially favorable terms or at all, customer demand, container investment levels, container prices, lease rates, increased competition, volatility in exchange rates, growth in world trade and world container trade, the ability of CAI to convert letters of intent with its customers to binding contracts, potential to sell CAI’s securities to the public and others.

CAI refers you to the documents that it has filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2014 and its Quarterly Reports on Form 10-Q and its Current 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 press release. Furthermore, CAI is under no obligation to (and expressly disclaims any such obligation to) update or alter any of the forward-looking statements contained in this press release whether as a result of new information, future events or otherwise, unless required by law.

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CAI International, Inc.Tim Page, 415-788-0100Chief Financial Officertpage@capps.com