CAI International, Inc. Reports Results for the Second Quarter of 2015; Announces the Acquisition of ClearPointt Logistics LLC and a One Million Share Repurchase Authorization

SAN FRANCISCO--()--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.

Contacts

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

Contacts

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